"That's the key to property: don't be in a position where you have to do something," he says.

But for every Blue at Milson's Point there's another project that won't be coming come out of the ground in the months ahead. Those stalled developments are the result of a double whammy that's about to whack the property market hard, courtesy of the pandemic: a crippling combination of falling house prices and a plunge in new housing starts.

The chart accompanying this story shows a strong correlation between changes in price growth and dwelling commencements. New starts are already trending down. What the chart doesn't show is how much deeper that decline is about to go. At the same time, if the latest predictions are correct, house growth will also be heading south.

Housing starts were already at a low ebb; the lowest, in fact, since 2013. They've been on a downward trajectory for more than a year, a lagging legacy of the downturn in prices between mid 2017 and early last year, when values in Sydney fell nearly 15 per cent. A small bounce in the December quarter gave a faint hope of a recovery. That's about to be extinguished.

UBS economist George Tharenou and his colleagues expect housing starts to fall below 100,000 annualised in coming quarters. That will be the lowest level since the 1960s.

The UBS call on house prices is just as alarming: a 10 per cent fall in the coming year. On Friday, economists at the nation's largest home lender, the Commonwealth Bank, upped the ante, forecasting a 10 per cent drop over the next six months. Annualised, that's a 20 per cent hit on home values.

The most immediate driver for all this distress is the social distancing restrictions in place to combat the spread of the deadly virus. Those restraints have decimated public auctions, shuttered shops, and tipped people out of work.


Government wage support and mortgage repayment holidays have provided Australians with a buffer, at least for now. But, warns Tharenou, there's another factor at play here that's likely to be even more consequential. This is the rapid decline in net migration as a result of efforts to mitigate the spread of the virus.

"We've focused a lot on social distancing and what that means, but we haven't really thought about the fact that the main driver of the housing market and the economy more broadly for the last decade has been migration," Tharenou says.

"Much of the new housing demand in the prior boom came from foreigners buying high-rises. The looming correction we expect to happen will probably be concentrated in multis [multi-storey developments]."

"You're going to have downward pressure on rents, upward pressure on vacancies and a big sentiment hit to investors. Investors are one third of the market."

The latest official figures show net overseas migration of 232,100 people for the year to last September, accounting for nearly two-thirds of annual population growth.

"It's clear right now that inward migration is going to stall for a period of time," says HSBC's chief economist for Australia and New Zealand, Paul Bloxham.

"It's not clear how long that will be. It could be quite some time before the borders are reopened and we have a flow of migrants coming in. That is going to slow down household formation and it is going to slow down housing demand."


As demand falls and existing housing stock is absorbed, there's no trigger to build more. In a vicious circle, falling prices extend into a slowdown in construction.

On the demand side, the price signal reinforces buyers' restraint. No one wants to buy a new home whose value has fallen by the time it's built, most of all an investor.

On the supply side, developers and their financiers are less willing to forge into a new project knowing any unsold units could be worth less than the starting price.

A key driver for house prices is credit availability and borrowing capacity: a combination of interest rates, lending conditions and income.

In recent years, it's been the dramatic fall in interest rates followed by the rapid squeeze in lending conditions – courtesy of interventions from the banking regulator and the Hayne royal commission – that have had most impact on the flow of credit into the housing market.

With a pandemic-caused spike in unemployment looming, it is now the third component of borrowing capacity – income and the capacity to service mortgages – which is now in the frame.

Housing market analysts hope the federal government backstop and banks' forbearance has deferred that threat for six months. Well before that, though, and with temporary visa holders already exiting the country en masse, it is the stopper on population growth which is most concerning.


"If you take that point on its own and extend it out, you can come to the conclusion that a lot hangs on when the migration flow starts to pick up again," Bloxham says.

As dusk settled over Lavender Bay on a recent evening, Carfi was realistic about the probability of a slowdown over the next six months. A canny campaigner, he is also quietly insistent it's also time to start looking at "some serious investment", ready to deliver into an under-supplied market on the other side.

The view from the new Blue at Lavender Bay development. Aqualand

No big fan of housing market analysts – he reckons the cheaper values of inferior homes typically sold in a low volume market distorts the reporting of price falls – Carfi is nevertheless in full agreement on the topic of population.

"Migration and inbound capital have been effectively driving the Australian economy for as long as I've been in business," he says.

"The government is doing all it can to deal with the initial crisis, but as we get to the point where we're looking at the rebuild phase I think they'll have to have a serious look at immigration and population."