Another key driver of demand, from first-time buyers, remains weak, with the numbers in the key age group of 20-34 year-olds actually falling.

By 2016-17, each state except for NSW will be in dwelling oversupply. BIS estimated that Melbourne will have 21,900 more dwellings than needed; West Australia will be over-supplied by 9000 homes and Queensland by 6400.

"It is time the industry moved away from the rhetoric of under-building," Mr Mellor said.

Within specific sectors, the oversupply will be worse. BIS noted that with the number of traditional detached housing still below previous peaks, the dramatic increase had been in high rise apartments.

Dwelling approvals – could be an accident waiting to happen.

Mr Mellor said the downturn in high rise apartment construction would be significant, with the apartment commencements in the Melbourne and Brisbane dropping up to 60 per cent.

And that would impact on all parts of the business from site values, to apartment sales, to finishing trades

"I am a little concerned that we could be looking at a very messy end to the apartment boom," said BIS associated director, Kim Hawtrey.


NSW, essentially Sydney, is still suffering from over a decade of under-building. By 2016-17 the state will still be under-supplied, by around 41,000 homes according BIS, and Mr Mellor said there was little risk of oversupply before 2019-20.

House prices to moderate

House prices are far stickier than construction starts. Across the country, the BIS outlook is for very moderate rises to small falls. In NSW BIS expect median house prices to be down 1 per cent by 2016-17.

Mr Mellor did not resile from his firm's analysis of the impact of changes to negative gearing - much criticised because BIS declined to say who had commissioned the research.

The research, modelled the removal of negative gearing on existing homes but not on new properties.

But it did not model any changes to the capital gains tax regime. So it modelled changes that would be less dramatic than those proposed by federal Opposition Leader Bill Shorten.

Nevertheless the research found that the with abandonment of negative gearing on existing properties, the rents would rise 2-10 per cent above the levels that would otherwise be set by supply and demand.

"There will be a significant negative impact....rents will rise and ultimately the government will have to provide subsidies to low income renters," Mr Mellor said.

An explosive report an explosive report by Jonathan Tepper, an economist at Variant Perception, and Bronte Capital chief investment officer John Hempton, argued that Australia's banks are lending money into a housing bubble and foreshadowed up to a 50 per cent plunge in property prices.