The Australian housing market has peaked in the opinion of economists from global investment banking giant UBS.

The bank's economics team said it usually takes rising official interest rates to stop the upward phase of a property cycle, but this very lengthy boom may be different.

"While the historical trigger for a housing downturn (of RBA hikes) is missing, mortgage rates are rising, and sentiment of home buying collapsed to a [near] record low," wrote Scott Haslem, George Tharenou and Jim Xu from UBS.

"Hence, we are 'calling the top', but stick to our forecasts for [dwelling construction] commencements to 'correct but not collapse' to 200,000 in 2017 and 180,000 in 2018."

Consumer sentiment towards housing has dived. ( Supplied: UBS )

Currently, there are around 220,000 dwellings under construction across Australia, with building approvals over the year to February holding at 228,000, not far off recent peaks.

UBS said this is roughly 50 per cent up on the most recent trough in new dwelling supply that was reached in the third quarter of 2012, led by a more than doubling in multi-unit developments.

However, UBS said the residential building boom will top out at roughly current levels in the second half of this year, before starting to ease off next.

The bank said its forecast is supported by an international crane count, with the number of cranes on Australian high-rise sites levelling out at a peak of 548, having surged 323 per cent since late-2013.

This will weigh on economic growth, which has been boosted by the apartment building boom, and also on employment for construction workers.

"After housing activity rose consecutively for over four years, its longest ever boom, we are now calling the top and think that housing activity has already peaked at greater than 6 per cent of nominal GDP," the economists argued.

From adding about half a percentage point to economic growth over the past two years, dwelling investment is expected to subtract around half a percentage point from growth next year.

Prices not likely to fall as boom ends

However, while UBS sees building activity dropping steeply, it does not see prices following.

"While we see a sharp correction for activity, which would not be unusual following a prolonged boom, and we still don't expect a collapse of prices which would have a broader negative feedback loop for the labour market and economy," the investment bank predicted.

UBS is tipping around 7 per cent annual price growth over 2017 as a whole, down from current levels around 13 per cent, and 0-3 per cent growth next year.

While home ownership is forecast to remain just as out of reach as it is currently for first time buyers, the positive news for them is that UBS is tipping rental vacancy rates to increase on the extra supply of units being completed this year, leaving rents continuing to rise more slowly than incomes.

Rising vacancies and weaker rent rises suggest no housing shortage. ( Supplied: UBS )

Although generally sanguine around the risk of a housing slump, due to strong population growth and stable employment, UBS did warn that there are elevated risks of something going wrong, due to Australia's high housing prices and record household debt.

The bank's economists said the Reserve Bank may face some dilemmas in setting interest rates over the next couple of years.

"Given the cash rate is already at a record low, and the prospect that the RBA attempts to start normalising rates by end-18, it seems unlikely commencements would rebound, and hence dwelling investment could keep falling in 2019," the note cautioned.

"This makes for a difficult policy position for the RBA. If it hikes too early/too much, it could turn a 'normal' housing correction into a slump."