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Construction is expected to become a key driver of economic growth over the coming two years, according to BIS Shrapnel.
BIS Shrapnel's Building in Australia 2010 report has found that there will be major drags on economic growth in 2010/11.
The first is a substantial 27 per cent decline in net overseas migration to 175,000 people, which will constrain retail sales growth. The second is a three per cent drop in private sector non-residential construction (non-residential building plus engineering construction), which is considerably worse than the Commonwealth Treasury's latest forecast for a 7.5 per cent rise.
"In this environment, we are predicting only two rate hikes by the RBA in 2010/11, with the first coming towards the end of 2010," BIS Shrapnel senior economist Jason Anderson said.
According to Mr Anderson, continuation of relatively favourable interest rates should encourage a recovery in first-home buyer numbers over the first half of 2011. A revival of first-home buyer demand would give residential property markets a second wind, and buoy upgrader and investor demand for new dwellings. In turn, BIS Shrapnel expects national home renovation expenditure will show solid growth of six per cent in 2010/11.
Apartment projects are also expected to deliver a substantial upside for the national economy during 2010/11, and beyond. The national number of private sector medium and high density dwellings has remained very low over the past few years so BIS Shrapnel is expecting a pick up. On the other hand, the number of private house commencements has been strong, with 2009/10 seeing the highest annual level since 2003/04, and should remain solid.
"Prospects for a sustained recovery in residential building activity are heavily dependent on demand in New South Wales and Queensland," Mr Anderson said.
"Stamp duty relief for new dwellings in New South Wales is expected to encourage a strong upturn in starts of apartment projects from 2010/11.
"More apartments would help to address housing shortages across Sydney - particularly in Western Sydney, where average population growth over the past decade has been weak on average, due to the lack of new housing."
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