Housing starts in Australia are set to reach levels not seen since 1994 with the number of commencements set to rise to 180,000 in 2014, a new forecast suggests.

In its May 2014 Housing Forecast Update, the Housing Industry Association (HIA) says following an improving year which saw start numbers rise 10.9 per cent to 167,947 last year, it expects ground to break on construction of 180,000 homes throughout the nation during 2014.

That would be the highest level on record since the nation built 187,000 homes in 1994 and only the second time since ABS records began that starts will have reached the 180,000 level in any given calendar year.

Leading the charge will be New South Wales and Western Australia, while Queensland will see growth of almost 18 per cent as recovery takes hold in places like Brisbane, the Gold Coast and the Sunshine Coast.

New South Wales alone will see ground break on more than 50,000 homes – the first time this has happened in the state since 1999.

hia - new starts

hia - rennovations

In its report, the HIA said last year’s recovery in housing starts had been stronger than expected as the low interest rate environment unlocked pent-up demand at a faster pace than initially looked likely.

Moreover, approval data suggested conditions would become stronger yet, it said.

“The outlook for 2014 and 2015 in terms of dwelling commencements is a positive one, with interest rates remaining relatively low and continuing dwelling price growth…” the report says. “…ABS local government building approvals through to March 2014 imply a peak in the dwelling commencements cycle in a range between 181,000 and 193,000. To date, the highest number of new dwellings commenced in a year stands at 187,000 in 1994.”

“The HIA Economics Group holds the view that commencements will peak at around 180,000 in 2014.”

Outside of new housing, the renovations market is expected to bottom out after hitting decade lows last year but activity in this area is expected to remain subdued until at least 2017, when the dollar value of investment in additions and alterations is expected to rise above $30 billion for the first time since 2011.

Despite activity in this area being set to receive a boost as low interest rates and rising house prices increase the financial capacity of households to undertake improvements and upgrades (notwithstanding low levels of consumer sentiment), the HIA says any substantial recovery would require households to spend more on their existing homes than is implied by the general level of household consumption growth at the moment.

How the states compare

New South Wales: Very strong activity with the number of new dwellings reaching more than 50,000 (50,812) for the first time since 1999. Slight recovery but weak overall conditions in renovations investment ($7.735 billion).

Victoria: Easing housing start numbers (47,000) dropping to below 44,000 next year after strong levels of multi-residential activity in recent years. Renovation activity ($7.264 billion) set to ease from high levels and drop back in future years.

Queensland: Starts to surge 17.9 per cent as southeastern markets recover after several years of low building activity. Renovations to rise moderately after bottoming out last year.

South Australia: Continued modest recovery with starts rising 5.9 per cent to come in at above 10,000 for the first time in three years. Modest recovery in renovations after bottoming out last year.

Western Australia: Continued strong activity as housing starts (26,881) edge up 2.6 per cent to set new decade highs. Renovation levels similar to previous years.

Tasmania: Flat new home activity with little sign of material recovery in future years. Modest improvements only in weak renovations sector.

Northern Territory: New housing starts (1,800) easing back off last year’s peak but remaining far higher than anything seen in the 2003-2011 period. Renovations ticking back up after bottoming out last year.

Australian Capital Territory: Housing starts (3,486) continuing to drop back after a surge in recent years and not expected to bottom out until next year but remaining well above levels seen prior to post-GFC stimulus measures. Flat renovations activity.