In a new note, titled "Housing didn't need an August rate cut" Citi's economics team predicted that housing starts in 2016 would go close to 230,000, which is higher than Citi's earlier forecasts, and an all-time record.
Housing starts will then retreat, but only gradually, to around 205,000 in 2017 and 170,000 in 2018 according to Citi.
The analysis was driven by the August building approval numbers which, though they declined marginally, were stronger than most predicted.
Citi notes that averaged over the past three months, apartment approvals are at record levels in NSW, and close to record levels in Victoria and Queensland.
The Citi numbers are not that different from a recent Deutsche Bank Market Research Australian Housing Update note, that predicted housing starts would remain at high levels for several years.
From around 224,000 starts in 2015-16, the level of activity is forecast to decline only marginally to 223,000 in 2016-17 and 2017-18 – largely due to activity in NSW and Queensland – before a 5 per cent decline in 2018-19.
In all cases the activity is well above the historical average of 156,000 homes.
The Citi analysts also noted the paradox between the increasing weakness in apartments and the strength in established house prices.
"Apartment oversupply is already apparent in several key postcodes in Melbourne and Brisbane with a high proportion of resales only being achieved with lower prices," they wrote.
But Citi expects the fall in apartment prices to be contained, and not spread more widely.
"Underlying housing demand appears sufficiently strong to prevent price contagion across the broader housing market," they wrote.
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