Victoria needs immediate measures to stimulate the demand for new homes and to quickly recover from an impending downturn, according to the Housing Industry Association (HIA).

According to HIA's projections, housing starts in Victoria are projected to be down by 12.7% this year. This decline is expected to extend into next year, with the state likely to report a further 33.8% drop in building commencements.

Fiona Nield, executive director for Victoria at HIA, said there is a need for the state to stimulate demand for new homes and to restore confidence amongst homebuyers to cushion the risks.

"HIA has been putting forward a range of measures to encourage home buyers back to the market, including a stimulus for home buyers, planning and building reforms, stamp-duty concessions and incentives for foreign investors, all of which are aimed at rebuilding housing activity in Victoria," she said.

The COVID-19 restrictions have resulted in lower sales and high levels of cancellations, according to HIA. Given these factors, home-building activity is likely to contract over the second half of the year.

"This will see the market at a lower point in December 2020 than it was during the 1990s recession, so stimulating demand so that the existing housing workforce can be retained and can deliver the homes Victorians need this year has never been so important," she said.

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While Victoria entered the COVID-19 crisis with an economy more robust than the rest of the country, Nield said the state is vulnerable to migration risks.

"With such a high degree of uncertainty around the outlook, the disruption to migration and the elevated rate of unemployment will also weigh heavily on demand for residential building beyond 2020," she said.

Leah Calnan, president of the Real Estate Institute of Victoria, said Victoria could weather the impacts of the COVID-19 outbreak on the economy and the housing market.

"There are many predictions circling about real estate and the economy in general, but looking at what the actual data tells us, the Victorian market is weathering the storm well," she said.

Calnan said house prices are not as affected as sales volume, which remains much lower than expected at this time of year.

"The Victorian market continues to show strong resilience, with the return of public auctions and easing of some restrictions, we expect the market to soon start gaining the momentum it lost due to the pandemic," she said.