Industry analyst and economic forecaster BIS Shrapnel have predicted a record-breaking recovery in home building for the next two years thanks to a continued tilting of Australian lifestyle toward apartment living.

According to their Building in Australia 2014-2029 report, constructed dwelling building activity will reach a new high, and more of those new homes will continue to be in apartment towers.

“New housing starts are forecast to reach 190,000 nationwide in 2014/15, which will surpass the previous peak of around 187,000 set back in the 1994 boom,” said BIS Shrapnel Associate Director, Kim Hawtrey.

“In the next two years we’ll also see the recent emphasis on high-rise units continue. Currently two high-rise apartments are being built for every five detached houses, which is double the historical rate of one apartment for every five houses built.”

The company’s latest forecasts show pent-up demand from recent strong population growth coupled with the lowest interest rates in 50 years as factors generating a record-breaking home building outlook for 2014/15 that will maintain its momentum into 2015/16.

According to BIS Shrapnel, low mortgage rates have encouraged building activity and ensuing pent up demand. This pent up demand is accelerated by Australia’s growing population which is currently at a rate of 1.7 per cent per annum and is translating into strong demand for new dwellings.

“Home building has been punching below its weight for about a decade, and has not kept pace with population growth for some time now,” said Hawtrey.

Based on BIS Shrapnel assumptions about household formation per thousand head of population, the Building in Australia report estimates the national dwelling stock deficiency is currently around 100,000 dwellings.

They estimate that it will take the next five years to eliminate the unmet demand for housing and therefore do not see the housing shortfall closing until 2018.

Nationally, the forecaster believes private sector detached house will grow by eight per cent in 2014/15.

Key Findings from BIS Shrapnel:

Residential building outlook

Housing starts are estimated to have already grown by 14 per cent in 2013/14 to an annual total of 184,350 commencements. This is compared with a recent trough of only 145,300 starts in 2011/12.

BIS Shrapnel sees commencements picking up further in 2014/15 (+3 per cent) to around 190,000 starts by June 2015. While this will mark the peak of the cycle in growth terms, the level of housing construction will remain high in 2015/16 with 186,850 commencements predicted, and 2016/17 will see activity still buoyant with an expected 168,600 dwelling commencements.

Momentum is particularly strong in New South Wales (+9 per cent growth in housing starts forecast for 2014/15), with Queensland (+3 per cent) also in a growth upswing.

Victoria (+3 per cent expected in 2014/15) has been over-building relative to demand and is expected to see a local slowdown due to oversupply, but not for another 12 months or so.

Until recently, Western Australia has been riding on momentum from the mining boom, but that is now turning and the state is forecast to record a fall of five per cent in housing starts in 2014/15.

Following an impressive overall national performance in home building during 2014/15 and 2015/16, natural cyclical factors will then lead to a correction in the cycle during 2016/17 (-10 per cent) and in 2017/18 (-12 per cent). Growth in housing starts will resume in 2018/19.

Non-residential building outlook

Following an estimated growth of five per cent in 2013/14, non-residential building commencements are set to continue growing into 2014/15 by a further five per cent in volume terms.

Commercial and industrial building (+11 per cent forecast for 2014/15) is providing the main support, with strong growth coming from accommodation and warehouses. Meanwhile, BIS Shrapnel said social and institutional building (-2 per cent) is easing back.

Although the private sector is underpinning something of a recovery in profitability and a return to growth in non-residential building, overall growth in the sector is not expected to be sustained beyond June 2015 as the volume of major public sector projects contracts. Social and institutional building is forecast to weaken as public funding allocations dry up.

Consequently, with the five per cent improvement in 2014/15, total non-dwelling building is forecast to peak (this peak will fall short of the recent high in 2009/10) and not surpass this level for the remainder of the next five years. Negative overall growth will be a defining characteristic of 2016, 2017 and 2018.

Total building outlook: summary

According to the Building in Australia 2014-2029 report, the total value of all national building commencements is forecast to grow five per cent in 2014/15. Dwelling commencements will follow a strong 2013/14 with further solid growth (+3 per cent). This will benefit from a strong result in detached house commencements, supported by growth in the alterations and additions (+5 per cent) and non-residential (+5 per cent) sectors.

The value of all building commencements will then decline for the next three years; by three per cent in 2015/16, six per cent in 2016/17, and seven per cent in 2017/18. The sector will then return to growth in 2018/19 (+8 per cent).