The peak of the residential construction boom in Australia appears to be drawing to an end with the latest predictions showing that dwelling construction starts will fall by more than 30 percent over the next two years.

In its latest forecast, Housing Industry Association said the overall number of new houses and apartments in respect of which ground will break will fall from what is expected to have been 228,230 in 2016 when final data comes out to still historically elevated levels of 174,380 by 2018.

Multi-unit developments are expected to be the biggest area of contraction as commencements on townhouses, units and apartments plummets by 37.4 percent to fall from 111,810 to 69,940 whilst detach house start numbers will ease back from 116,420 to 104,440.

Eastern States will lead the way, with starts dropping by 30 percent in each of New South Wales and Victoria and by 22 percent in Queensland.

HIA Senior Economist Shane Garrett said the decline was being driven by a number of factors.

First, foreign buyers had been deterred by special stamp duty charges.

This was particularly, in Melbourne, where surcharges of 7.5 percent were in play and where overall taxes and charges paid by foreign investors on a new apartment valued at $500,000 amounted to $83,500.

As well, slowing rental price growth would impact the attractiveness of new housing for investors whilst inward migration growth had eased elsewhere despite remaining strong in Victoria.

Despite this, Garrett does not subscribe to the idea that housing markets are necessarily oversupplied.

Whilst acknowledging that the pipeline of new supply in eastern markets and particularly in Melbourne which was set to come online was significant, he said overall levels of demand remained healthy despite the foreign investor surcharge.

In particular, demand associated with population growth remained reasonably robust particularly in Melbourne despite having eased in recent years.

Moreover, Garrett said new house construction would remain at historically healthy levels despite dropping back from the record levels of today.

“We are expecting home building levels to bottom out at 172,000 (in 2018 and 2019),” Garrett said. “There have been few figures that have been published where new home building has exceeded that level.”

“Even at its lowest point in the cycle, it’s still going to be pretty elevated by historic standards.”

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