BIS Shrapnel sees construction fatigue ahead

New multi-residential building is set to plummet by 50 percent by 2020, says research group BIS Shrapnel who forecast "construction fatigue."

The current residential building boom will run out of steam, BIS Shrapnel's Building in Australia 2016-2031 report says, as most markets except Sydney will experience an oversupply of stock as population growth slows.

BIS Shrapnel estimates the fall in net overseas migration to contribute to the decline.

Dwelling starts reached an all-time national high of 220,100 in 2015-16 which were mostly apartments.

This strong construction activity will decline by 16 percent nationally in 2016-17.

Melbourne's “turbocharged” apartment market will see the biggest fall, BIS Shrapnel associate ­director Dr Kim Hawtrey said.

“Multi-residential building in Victoria has been absolutely turbocharged and has gone through the roof."

Dr Hawtrey said more than 30,000 apartments and units began construction in Victoria during the past financial year — about three times the normal annual rate before the Global Financial Crisis.

He said the number of new apartments and units in the state would drop below 30,000 this financial year to closer to the mid-20,000s.

Investors would no longer fuel the apartment-building boom as they had in previous years, the report said.

"With investors facing finance restrictions and first homebuyers sidelined, it will be up to upgraders/downsizers to help cushion the decline in activity," BIS Shrapnel associate director Kim Hawtrey said.

"Low interest rates have unlocked significant pent-up demand and underpinned the current boom in activity, but with population growth slowing and a strong backlog of dwellings due for completion, new supply will outpace demand," Dr Hawtrey said. 

"This will see the national deficiency of dwellings gradually eroded and most key markets will begin to display signs of fatigue."