The report also noted that new dwelling completions peaked 2018/19 and rental growth has been softening in response to high levels of new supply.

BIS Oxford Economics associate director Angie Zigomanis said these factors are expected to continue to contain investor demand and in turn keep a lid on prices despite recent reductions in interest rates.

“The reductions in interest rates and easing in lending policy are expected to see residential markets stabilise in the latter half of 2019 and some price growth begin to come through in 2020. However, any price increases are likely to be muted, with high levels of supply continuing to weigh on the market,” said Mr Zigomanis.

“Supply is running at record levels, with new dwelling completions having exceeded 200,000 in each of the past four years and expected to have peaked at a record of just under 227,000 dwellings in 2018/19. This compares with underlying demand for new dwellings averaging around 195,000 per annum in the same period, which in itself is a record.”

The report estimates that state markets are in oversupply, with some at best being close to balance.

“Moreover, in the short term, economic conditions are forecast to be relatively muted and this will also play on demand. Weak wages growth is holding back consumer spending, while a decline in new dwelling construction is becoming a drag on the economy,” the reported stated.

“An acceleration in economic growth is not expected until 2020/21 after residential construction bottoms out, and both improving building activity and business investment begin to drive economic growth.”

The report said that the fall-off in purchaser demand is now translating to a decline in new dwelling commencements, which are expected to fall from their 2018/19 peak to a low of 163,000 dwellings by 2020/21.

“This downturn in new supply will sow the seeds of the next cyclical upturn. Population growth is expected to remain high, at an estimated 400,000 per annum over the next three years, fuelled by high net overseas migration inflows,” it said.

BIS Oxford Economics noted that conditions will be different from city to city, as well as between the house and unit markets.

“The unit market is expected to face more challenges than the detached house market in the coming years. With new apartment construction rising at a much greater rate than houses through the upturn in new dwelling supply, and investors fuelling most of this growth, the excess supply is expected to be more concentrated within the apartment sector rather than houses,” it said.

“The more conservative lending practices by the banks are also more pronounced in lending to investors.”