A new report released by Master Builders Australia predicts a tough year ahead for the housing market in Australia.

Pointing to a challenging year ahead, chief economist Shane Garrett says, “New home building across Australia is facing into its toughest year in almost a decade with declining house prices and the fallout from the Royal Commission really starting to bite.”

According to Garrett, the peak experienced by the housing market in 2016-17 with about 234,000 new home starts will see a decline in output to 210,200 during 2018-19 overall, further falling to 197,500 during 2019-20. A succession of further declines will bring new home starts down to 175,900 by 2022-23.

He explained that a combination of factors including strong population growth, big house price gains, super low interest rates and keen demand from foreign buyers helped lift new home building to record levels in the middle of the decade.

However, several of the ingredients that made up this favourable mix are no longer in place. For instance, house prices have seen sizeable falls in a number of key markets, while state governments have erected prohibitive barriers to foreign buyers.

“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,” says Garrett.

While observing that the robust labour market is fuelling a healthy pace of migration-driven population growth leading to an elevated demand for new home building, he notes that it is not being translated into stronger activity on the ground because of the credit crunch and decision paralysis ahead of the election.

Garrett also underlined the importance of getting urgent clarity from all parties on their exact plan of action once the Federal Election is concluded.