THE larger-than-expected influx of migrants will cushion the residential building sector from any sharp correction in 2003/04, and building levels will again increase in 2004/05, says the latest Building Industry Prospects from BIS Shrapnel.

The market will experience an 11 per cent decline to 151,000 dwelling commencements in 2003/04, which while it remains a significant decline is much less severe than the previous forecast of 139,000 dwellings.

BIS Shrapnel has revised its forecasts following the release of new migration and population figures from the Australian Bureau of Statistics. The ABS has recently revised upward the level of net overseas migration by some 26,000 annually over the two years to June 2002.

Based on these figures, BIS Shrapnel calculates that net overseas migration will total between 140,000 and 150,000 annually over the next three years, an estimate that considerably increases underlying demand for new dwellings in all states and territories. (The sole exception is the Northern Territory where the original estimate remains unchanged.)

(This stronger overseas migration is being driven largely by substantial growth in the number of long term visitor arrivals, not simply by an increase in permanent immigrants.)

BIS Shrapnel forecasts total dwelling commencements will increase by 2 per cent to 168,300 dwellings in 2002/03, based on building approvals to April 2003.

The Director of Building Services, Robert Mellor, identifies an increased level of demolitions, or "knock-downs", of detached housing as a further influence driving the sector. Demolitions have been running particularly strongly in Sydney, as the high cost of land leads some home owners to knock down their existing houses and build new ones, rather than move or undertake home additions.

BIS Shrapnel estimates underlying demand for new dwellings over the next five years to average 160,000 annually, compared with 141,500 per anum in the five years between 1996 and 2001. The largest increases in demand will occur Victoria, NSW and Queensland.

The increased level of immigration will be responsible for an additional 13,000 dwellings annually over the next five years, compared with BIS Shrapnel's projections of a year ago, while higher demolitions are expected to result in additional demand of 7000 dwellings. (The total underlying demand has been marginally adjusted downwards for a slightly lower household formation ratio.)

State-by-state summary

NSW: New ABS figures show an increased number of immigrants over the past three years has boosted population by 47,000 as at June 2002. Accordingly BIS Shrapnel has revised upward the estimated stock deficiency as at June 2002 from 2700 to 15,400 dwellings. Dwelling completions plummeted in 2001/02 following the post-GST correction, and despite relatively high completions in 2003/04 and 2004/05, the stock deficiency is expected to increase slightly. A projected deficiency of 21,700 dwellings by June 2004 will drive a boom in dwelling commencements in 2004/05 and 2005/06.

Victoria: The dwelling stock deficiency is marginally lower than previously estimated. Given the current strength of construction and the fact that underlying demand will weaken in 2003/04 as Victoria returns to a net interstate migration outflow, the market will be nearly in balance by June 2004. The underlying demand estimate for new dwellings has been increased by 3300 to 36,900 dwellings per annum, due to higher overseas migration and a larger number of demolitions.

Queensland: The market has turned around from one of oversupply at June 2000 to a large estimated stock deficiency of 16,800 dwellings at June 2003. The underlying demand estimate has increased by 6400 dwellings to a requirement for 41,500 dwellings annually over the next five years. This increase in underlying demand is the largest of any state or territory, with Queensland expected to absorb a higher share of immigrants from overseas and a larger net inflow from interstate migration.

Western Australia: BIS Shrapnel has revised down its estimate of excess supply at June 2003 from 8300 dwellings to 1000 because a much higher level of demolitions has now been estimated. The state's underlying demand estimate has been increased by 2300 dwellings due to the expectation of a higher level of overseas migration and more demolitions over the next five years.

South Australia: Higher population numbers and, in turn, stronger underlying demand has led to a revision in the state's oversupply from 10,600 to 2600 dwellings at June 2003. However, construction remains well above underlying demand and will result in excess stock increasing to 4300 dwellings by June 2004. Estimated annual underlying demand has been increased by 1400 to 7500 dwellings, due to an expectation of a lower net interstate population outflow than previously forecast.

The excess supplies of dwellings in Tasmania (2100) and the Australian Capital Territory (200) have been reduced from previous forecasts due to higher population estimates. The annual underlying demand estimate in Tasmania has been increased from 1000 to 1500 dwellings and in the ACT from 1800 to 2100 dwellings.

Northern Territory: With lower population growth and an increase in the estimate of unoccupied dwellings, the market is estimated to have an oversupply of 3000 dwellings as at June 2003. However, the Territory is experiencing a high level of investment in oil and gas projects. These projects will drive stronger population growth which, in turn, will increase underlying demand for new dwellings. Underlying demand is estimated at 1600 dwellings annually over the next five years, compared with 1200 per annum between 1996 and 2001. - Construction Contractor