The Reserve Bank has warned construction activity could begin to decline as the number of residential building approvals falls from its peak in 2016.
The message, released in the minutes of the central bank's August meeting on Tuesday, comes a week after BIS Oxford Economics forecast a 31 per cent fall in the level of dwellings being built, from a peak of 230,000, to 160,000 within the next three years.
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Any fall in the level of construction could put tens of thousands of jobs at risk. The Australian Bureau of Statistics estimates that every $1 million spent on residential construction generates 17 full-time jobs.
"The number of new residential building approvals had stepped down since 2016 and members noted that, if approvals remained at current levels, construction activity could also begin to decline," the board said.
BIS Oxford Economics is predicting a drop not seen since the residential building trough of the mid-1990s and the introduction of the GST in 2001.
Commonwealth Bank economist Kristina Clifton said she believed the latest residential construction cycle had peaked.
"We think the downturn will be gradual, and we expect an extended plateau where residential construction activity remains at a high level over 2017 and into 2018," she said.
"For employment, we expect that job losses will occur fairly gradually alongside the gradual decline in activity. This will help the labour market better absorb these workers."
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She said she expected NSW, Victoria and Queensland, where the majority of the construction boom had occurred, to be hit hardest, but this would be offset by the strong employment markets in each state.
Household debt
The central bank also sharpened its focus on rising levels of household debt, which have reached a record high of 190 per cent of household income.
The board said house prices were continuing to grow strongly in Sydney and Melbourne and while growth in lending to investors had slowed, overall housing credit had continued to outpace the growth in incomes.
It noted the "need to balance the risks associated with high household debt in a low inflation environment" as one of its key justifications for keeping rates on hold at 1.5 per cent this month.
Markets are betting they will remain on hold for a further 12 months, an assumption that governor Philip Lowe did not discourage at a government economics committee meeting last week.
Rising confidence
In an otherwise upbeat meeting, the minutes conveyed rising confidence that Australia's economy would strengthen and benefit from a global uptick.
The Australian dollar rose as high as US78.77¢ following the release, up from US78.69¢ at Monday's close.
"Employment had increased in every state since the start of 2017, including solid growth in the mining-exposed states," the board said.
"Over this period, around 165,000 full-time jobs had been created, labour force participation had risen and average hours worked had increased."
Globally, areas of uncertainty remain. The board placed a particular focus on China maintaining its levels of growth.
With wires