Oversupply looms as construction numbers peak

By Phil McCarroll | 21 Jul 2015
The boom is over for Australia’s housing industry according to BIS Shrapnel, with a new report claiming the record setting pace of housing construction in recent years has hit its peak.

According to BIS Shrapnel’s Building in Australia 2015-2030 report, dwelling commencements in Australia peaked over 2014/15 and will start to slow in coming years, albeit not at a rate that will prevent some areas from suffering from over-supply.

“After recording strong growth over the past few years, we estimate that total dwelling starts reached just over 210,000 in 2014/15, an all-time record high,” BIS Shrapnel associate director Dr Kim Hawtrey said.

“From this level, national activity is then forecast to begin trending down over the following three years, with the currently high-flying apartments sector leading the way down.”

The report estimates Australia’s dwelling stock deficiency peaked at approximately 108,000 in June 2014, but had dropped to around 85,000 by June 2015.

This decrease is likely to continue as Australia’s rate of population growth continues to slow.

“Low interest rates have unlocked significant pent up demand and underpinned the current boom in activity, but as population growth slows while construction activity remains strong, new supply will begin to outpace demand,” said Dr Hawtrey.

“This will see the national deficiency of dwellings gradually eroded and some key markets will begin to display signs of oversupply.”

The report identifies Victoria and Western Australia as the two markets most likely to be hit by oversupply.

In Victoria, it’s estimated that dwelling commencements will drop by around 7% across 2015/16, as overbuilding in recent years leads to areas of Melbourne suffering from over supply.

Western Australia is expected to see a drop of 13%, as the mining slowdown continues and population growth softens sharply, resulting in any stock deficiency evaporating quickly.

Conversely, New South Wales is likely to maintain the growth in its construction industry through 2015/16, with the state likely to continue to see a deficiency of dwellings.

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