New Victorian supply set to cool over next four years

Ms Nield said a downturn in new home building is expected to begin in financial year 2018–19, with the current forecast of new home starts predicted to drop by 34.8 per cent by financial year 2020–21, which is expected to leave total housing starts just below the average of the last 10 years at under 50,000.

“We have been watching leading indicators of home building activity soften since it became evident how significantly the home lending landscape had changed,” Ms Nield said.

“APRA initially introduced regulations designed to curb high risk lending practices, but the actual changes in the lending environment go above and beyond this. Ordinary home buyers now find themselves facing some constraints accessing finance.

“Slower processing and a reduction in lending is weighing significantly on the housing market. The impact on residential building activity will become more evident as we progress into the new year.”

Ms Nield added that despite being in a decline, the Victorian market is positioned to take the decline without any harsh side effects to the state’s economy.

“The state’s labour market is in a strong position, economic growth has outpaced the national average for the last four years and population growth continues to fuel demand for more housing,” she said.

This analysis of Victorian supply follows reports that overall supply will surpass previous heights after recently predicted downturns, according to HIA principal economist Tim Reardon.

“At this stage, we have to keep in mind that building market is cooling from very high levels of activity and we’re expecting that there would be a downturn over the course of the next couple of years,” Mr Reardon said.

“Even at the end of that downturn, we still expect building activity to be well above historical averages. In fact, it may even be as high as our previous peaking building activity.”