House price inflation will decelerate further next year, weighing on construction activity and household sentiment, as real wage and income weakness continues to hold back economic growth, according to a cautionary assessment from the closely watched economist Saul Eslake.

Bank of America Merrill Lynch's senior Australian economist says the current slowdown in house price growth will persist into 2015, despite record-low lending rates. Plans by the Australian Prudential Regulatory Authority (APRA) to toughen conditions around investor loans will also be a factor here, he says.

Economist Saul Eslake says the current slowdown in house price growth will continue into 2015, despite record low lending rates. Credit:Arsineh Houspian

All this could eventually curb construction activity – one of the main drivers of non-resource growth at the moment – and trap negatively geared property investors counting on capital gains to upgrade to owner-occupiers, he warns.