New home building across the nation is facing its toughest year in almost 10 years, and this is predicted to weigh down the housing market, according to Master Builders Australia.

The bleak forecast for the new home building sector was driven by declining house prices and the fallout from the Royal Commission really starting to bite.

“About 234,000 new homes were started at the peak of the market in 2016/17. We anticipate that output will decline to 210,200 during 2018/19 overall and fall to 197,500 during 2019/20. A succession of further declines will bring new home starts down to 175,900 by 2022/23,” said Shane Garrett, Master Builders Australia chief economist.

New home building hit record levels in the middle of the decade due to a mixture of strong population growth, big house-price gains, very low interest rates and keen demand from foreign buyers. However, many of these elements are no longer present. House prices, for instance, have significantly declined in a number of key markets, while state governments have implemented prohibitive barriers to foreign buyers.

In addition, factors associated with developments in the federal government have contributed to the slowdown in the market.

“Reaction to the Hayne Royal Commission has slowed the circulation of mortgage credit within the housing market, and this is the biggest factor holding activity back at the moment. Uncertainty in the lead-up to the upcoming federal election is also delaying activity in the market. People want to know what the colour of housing policy will look like before they enter into commitments,” Garrett said.

The solid fundamentals of the Australian economy currently keep the underlying demand for new home building up. However, this is not being translated into more robust activity on the ground because of the credit crunch and decision paralysis ahead of the election.