The supply of affordable housing in Australia requires serious reform from the federal level, a leading housing industry association has warned.

“Looking beyond the current cycle, a strong focus on housing supply and policy reform is crucial to Australia’s future economic and social prosperity as we look to successfully house a growing and ageing population, along the way reducing pressures on the nation’s burgeoning health budget,” Housing Industry Association (HIA) chief economist Harley Dale said.

“Australia will fail to achieve this objective without federal government leadership and involvement in housing policy reform, including strategic planning for the future housing and residential infrastructure requirements of our growing and ageing population.”

According to Dale, “tinkering” with tax provisions such as negative gearing and capital gains tax does not represent real reform – and actually risks damaging confidence towards the housing industry.

A key finding in the latest HIA National Outlook is that a peak in new home building activity will be followed by a significant cyclical downturn extending to 2017/18.

New dwelling commencements are forecast to decline from a record peak of 220,000 last year to a trough of around 160,000 in 2017/18, while the growth in residential property prices will continue to slow.

However, Dale says the outlook for renovations investment, which is recovering from a 12 year low, is looking a little brighter.

“Having grown by just 0.9% during the 2014/15 financial year, renovations investment is forecast to grow by 2.8% in 2015/16. Growth is anticipated to increase by a further 1.7% in 2016/17, with activity then projected to see modest yet steady increases out to the end of the decade.

“This outlook for the renovations sector doesn’t look like shooting the lights out, but it is considerably more promising than what we have faced for some years now.”