Australia's economy holds the world record for the longest recession-free run thanks, in large part, to a record home-building boom that offset the pain of the mining bust.

But that boom is already past its peak and there is much worse to come, according to the latest Building in Australia forecast from BIS Oxford Economics.

"We won't see it impact significantly over the next six months," said the economic forecasting firm's managing director, Robert Mellor.

"But as we move into 2018, particularly as those big high-rise apartment projects come off — commencements have been falling for nearly 12 months in Brisbane and they'll start falling in Sydney and Melbourne — 12 months down the track, the level of work being undertaken will decline significantly."

BIS Oxford is forecasting the number of dwelling starts will decline from a peak above 230,000 to a trough around 160,000 within three years — a 31 per cent slump.

BIS Oxford Economics is forecasting a 31 per cent slide in residential dwelling commencements. ( Supplied: BIS Oxford Economics )

The news is far worse in the high-rise apartment sector, which is predicted to face a 50 per cent collapse nationally, with falls in new building of up to 70 per cent in Brisbane and 60 per cent in Melbourne.

Housing undersupply turning to surplus

The steep declines are a direct result of the record construction boom, which has wiped out housing undersupply nationally, leaving only pockets of shortage in Sydney and Melbourne.

"The underlying level of demand for dwellings, based on population growth [and] the level of household formation, is probably about 184,000 dwellings per annum," he observed.

"So we're basically overbuilding in a long-term sense."

BIS Oxford Economics is forecasting that Australia will swing from dwelling undersupply to oversupply. ( Supplied: BIS Oxford Economics )

That means that Australia also faces a serious oversupply of construction workers, with the mining boom gone and the residential building boom set to fade fast.

Mr Mellor said tens of thousands could find themselves unemployed.

"If you're seeing a decline in the order of the peak of 230,000-plus dwellings to a trough somewhere between 160-170,000 dwelling commencements that's a pretty significant decline in the required level of employment," he warned.

Mr Mellor has been forecasting in the construction sector for nearly four decades and said the booms have often been bigger than expected and the busts also more severe.

He said the downside risk to BIS Oxford's forecast is the danger of a downward spiral that this decline in employment could trigger through increased mortgage defaults, falling home prices and further cuts to development plans.

Investor pull-back threatens apartment collapse

Another risk is the reliance on investors to underwrite the current apartment boom.

"Overseas investors are now facing significantly higher taxes as well as maybe there's still restrictions upon funds being able to come into the country from overseas, or overseas investors being able to get local funds," he said.

"Coupled with that, you've got local investors finding it harder and paying significantly higher interest rates, particularly for interest-only loans.

"That's going to be a key driver, where developers find it hard to get projects off the plan and you will see a substantial correction in construction."

Other forecasters are not quite as pessimistic, such as Riki Polygenis, National Australia Bank's head of Australian economics.

"Residential construction will be adding to growth through 2017 and the first half of 2018 before it does start to turn down," she said.

"We are expecting a gradual ramp-up in non-residential construction and infrastructure spending."

Mr Mellor agreed that there will probably be gains in office building and new infrastructure, especially in Sydney.

BIS Oxford Economics expects the value of construction work done to fall, mainly due to apartments. ( Supplied: BIS Oxford Economics )

However, as with NAB, he said it will not be enough to offset the steep fall in the much bigger residential sector.

"That will start to impact in a negative way and keep economic growth more in the 2.5 per cent range," he predicted.

NAB has a similar economic outlook, predicting GDP growth of 2.5-2.75 per cent until 2019, meaning that interest rates are also likely to remain steady until then.

"The RBA will still be wary of choking off the gradual recovery we're seeing through the non-mining economy, and they'd also prefer a lower currency," she said.

"So rate hikes are still some way off and we don't actually have them pencilled in until 2019, with some chance of it being a bit earlier in the back half of 2018."

With a more pessimistic outlook for residential construction, Mr Mellor thinks the Reserve Bank will sit on its hands even longer, leaving rates on hold until 2020.