Activity in the construction of new homes and apartments is set to stabilise at levels around 20 percent below recent highs, the latest report suggests.

Releasing its economic outlook, the Housing Industry Association (HIA) said it expects the number of commencements on new homes and apartments to bottom out at 179,606 in 2020/21.

At this level, starts will be 22 percent lower compared with a peak of 221,801 in the year to March 2016 but will remain above historic annual averages of around 160,000.

The biggest decline will be in apartments, where HIA says starts are already lower compared with one year ago by 41.8 percent.

Going forward, HIA says multi-unit starts in will drop a further 12.8 percent in 2019/20 before stabilising in 2020/21 and increasing slightly in 2021/22.

In detached housing, HIA says starts will decline by 7.6 percent during the current financial year before stabilising at these levels for the following two years.

Most of the decline in detached housing starts will take place in the first half of the year, HIA says.

HIA Chief Economist Tim Reardon said a faster than previously expected stabilisation in new home building is being supported by an easing of income taxes, lending restrictions and monetary policy settings.

Should these settings remain, he says starts should settle at a level which roughly meets population demand.

“If economic activity improves, the credit squeeze dissipates, home prices stabilise and the recent stimulus measures take hold, the supply of new work into the pipeline will soon reach its low point,” Reardon said.

“All indications are that this stabilisation will occur and prevent a more significant downturn. This will set a new market equilibrium where the supply of new homes meets, rather than exceeds, demographic growth requirements.

“This new equilibrium will see the number of new homes remain around 180,000 per year, not in excess of the 200,000 that have been built each year, for the past five years.”