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New home building in Australia set to increase in 2015 before falling off

This level of growth would take commencements to a record level of 195,936 but the HIA also believed that this is likely to represent the peak in the current cycle, although the heightened uncertainty that comes with breaking records means further growth shouldn’t be ruled out.

Indeed, the HIA central forecast shows that after three consecutive years of strong growth, dwelling commencements are set to decline by 5.7% in 2015/2016 and a further 4.7% in 2016/2017.

It also says that from a national perspective, renovations investment continues to disappoint and only grew by 0.5% in 2013/2014, from a decade low. Renovations activity is forecast to grow by 0.2% in 2014/2015.

However, the report suggests that momentum to the renovations recovery should build in coming years and projects an increase of 2.8% in 2015/2016, followed by a growth of 3.2% in 2016/2017, taking the value of renovations to $30.3 billion.

Meanwhile, the latest data from the Australian Bureau of Statistics shows home prices continued to rise at a sustainable rate during the December 2014 quarter, up 1.9% on the previous quarter.

Compared with the same period 12 months earlier, home prices were 6.8% higher. Established house prices increased by 7% over the past year, with other types of dwelling seeing growth of 6.1%.

‘The ABS figures show that dwelling price growth is now comfortably sustainable. In inflation adjusted terms, the rate of home price growth is now around 5% annually,’ said HIA senior economist Shane Garrett.

‘This is exactly the kind of home price growth that prevails over the long term. Australian home price growth is now striking the right balance. The housing industry has played a vital role in bringing price growth onto a more even keel,’ he explained.

‘During 2014, new home commencements reached the highest level on record. This has been a vital factor in assisting housing affordability, as well as providing crucial support for demand in the domestic economy,’ he pointed out.

‘We need to ensure that new home building is allowed to make a full contribution to improving affordability and living standards in the economy. The current design of taxation in the residential construction sector is not consistent with this goal. We need to see greater urgency in terms of easing the tax burden on new housing, and we look forward to potential remedies being included in the forthcoming Tax White Paper,’ he added.