The latest Building Industry Prospects report from BIS Shrapnel forecasts that while a major decline in housing starts is likely it is still possible that the decline may be less sharp than predicted.

However, the softer the decline in 2002/03, the more likely activity in 2003/04 may be weaker.

BIS Shrapnel is forecasting that total dwelling commencements will decline by between 10 and 16 percent (138,000 to 148,000) dwellings in 2002/03, driven largely by a correction in the first home buyer market.

The downturn will be exacerbated by an expected 0.5 percent rise in interest rates by June 2003 and developer concern over the capacity of the market to absorb continued new supply, given that rental vacancy rates in Sydney and Melbourne are already at their highest level in nearly 10 years.

Building Industry Prospects that the sharpest declines will be in Tasmania, the ACT, South Australia and Western Australia, with only the Northern Territory market improving.

The bulletin forecasts that the current net interstate migration inflow into Victoria will decline in the current financial year, and reverse to a net outflow in 2003/04. The loss of population from Victoria will be Queensland’s gain and contribute to an increase in pent-up demand, leading to a residential building boom in Queensland in the middle of the decade.

Robert Mellor, BIS Shrapnel’s director of building services, describes the figures for total dwelling approvals for the first two months of 2002/03 as “phenomenal”, with growth of 13 percent on the same period last year. “The exceptionally strong private other dwelling approvals, which were 25 percent ahead over the same period, is not sustainble given the risks of oversupply,” he says.

Source: Building Products News.