Total building commencements will continue to rise in the coming months but activity is expected to decline next financial year as Australia's housing boom begins to taper off, according to BIS Oxford Economics.
Robert Mellor, the managing director of the independent advisory firm, says new residential construction, which has been driving the boom in building activity, has lost steam in 2017/18.
He expects new dwellings activity to fall by about four per cent by the end of the current financial year, weighed down by a 14 per cent decline in construction of high density housing.
Non-residential building activity is anticipated to grow by about 21 per cent over 2017/18, buoyed by a healthy project pipeline in the eastern states, after a 10 per cent rise in 2016/17.
The climb will contribute to an expected five per cent increase in total building commencements in 2017/18, Mr Mellor said.
"This is a pretty healthy environment when we are effectively at the tail end of the residential boom," he told a business conference in Sydney.
He expects construction of new dwellings to fall 12 per cent in 2018/19, while non-residential commencements will slide a modest three per cent.
That will lead to a fall in total building commencements of eight per cent.
"I think the decline in 2018/19 is only very modest so there will still be a reasonable amount of work in the system, and even more so in NSW, out to June next year," Mr Mellor said.
"Nonetheless, this still represents a very high level historically."
Mr Mellor said significant tax charges by state and federal governments, restrictions on lending to overseas buyers and tighter capital controls in China has reduced demand from foreign buyers.
Demand from first home buyers has jumped since July, thanks to the NSW government providing stamp duty exemptions, he said.
"We are in a transition period away from a market that was heavily driven by investors, local or offshore investors, at the moment," he said.
"More first home buyers in the market, particularly with less investors there, will mean that potential upgraders or downsiders will have the opportunity to sell their property to someone and then they might go out and purchase a new dwelling."
