Record levels of home building could lead to an oversupply of properties in the next couple of years.
But economic research by BIS Shrapnel suggests affordability concerns in the key Sydney and Melbourne housing markets are unlikely to go away in a hurry, despite interest rates remaining at an all-time low.
It estimates work started on a record 210,000 homes during the 2014/15 financial year, and although this is likely to be the peak in activity, the national market will shift into a mild oversupply by 2018.
BIS Shrapnel associate director Kim Hawtrey expects 2014/15 was probably the peak in home building activity and will gradually trend down from here.
"Low interest rates have unlocked significant pent up demand and underpinned the current boom in activity," Dr Hawtrey said releasing the report on Monday.
But as population growth slows while construction activity remains relatively strong, new supply will begin to outpace demand.
"This will see the national deficiency of dwellings gradually eroded and some key markets will begin to display signs of oversupply," he said.
The forecaster is anticipating weaker population growth due to a continued easing in overseas migration in response to softer employment and economic growth.
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