A new report based on revised housing supply figures from the 2011 Census data predicts low levels of demand will keep residential construction down for at least four years.

It also says expects the next upturn will be limited to just three states - New South Wales, Queensland and Western Australia – and will peak much lower than past upturns.

Macromonitor’s Australian Construction Outlook – Residential Building finds demand for housing is much lower than previously estimated and while the building industry can expect poor conditions to improve.

It forecasts an increase in the number of dwelling starts over the next three years of around 18 per cent, peaking at just over 160,000 dwellings in 2014/15. A decline is forecast in 2015/16.

The report concludes that a downward revision of the population by almost 300,000 people, combined with changes in household formation behaviour revealed by the Census, mean that the demand for housing is substantially lower than previously estimated.

The report’s author, Macromonitor Director Nigel Hatcher, says, “we now know that any housing shortage which exists in Australia is relatively small, and so a major boom in housing markets over the next few years is highly unlikely.”

“While there is some degree of undersupply in New South Wales, Queensland and Western Australia, there are also pockets of considerable oversupply, particularly in Victoria, South Australia and the ACT,” says Hatcher.

During 2012/13, 145,500 dwellings are forecast to commence, up from 136,800 in 2011/12.

The report notes that changing household formation behaviour is undercutting demand for dwellings.

Hatcher comments, “Declining housing affordability has caused a range of changes in behaviour, such that the person per household ratio is now rising for the first time in decades.”

“We are seeing fewer single person households and more group households, and the average size of group households is getting larger. There is also an increased incidence of people living with relatives and other families,” says Hatcher.

“Furthermore, in Queensland and Western Australia, the states dominated by big resource development projects, there has been a rise in work site accommodation, which doesn’t benefit traditional home builders,” according to Hatcher.

The report also notes a big shift in dwelling demand, from detached houses to higher density dwellings, particularly in New South Wales. Of all new households formed in New South Wales over the five years to 2011, Macromonitor estimates that only one-third resided in a detached house, down from close to two-thirds in the early 1990s.