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Housing construction to stall across Australia: Report

New housing construction is set to stall across Australia, with the brakes applied to the post-GFC recovery after a significant tightening of monetary policy by the Reserve Bank of Australia.

Housing Construction HIAThe Housing Industry Association believes that the recovery in residential constructions was underpinned by the ’emergency setting’ of below trend interest rates by the RBA after the GFC hit in 2008. With interest rates reset to their trend average over the last decade by the RBA, the artificial stimulus to the housing sector has wound back demand for new home construction.

The HIA’s quarterly National Outlook Report highlights a relatively healthy first stage new home building recovery, but unfortunately these new housing starts will dry up in the middle of 2011.

“It is not too late to turn the situation around through policies targeted at new home building combined with more rapid progress in reducing structural supply side barriers,” said HIA Chief Economist, Harley Dale.

“The empirical data, observations on the ground, and the slow progress in reducing supply side obstacles all currently point to the first increase in housing starts in eight years in 2010 reverting back to a decline in starts in 2011,” Harley Dale said.

Supply side problems continue to be a burden for new housing construction, as new land releases are simply not occurring at a rate fast enough to meet demand.

“Australia needs to build over 190,000 dwellings in 2010 alone to meet underlying demand and over the next ten years we need to build 420,000 dwellings more than we built over the last decade,” said Harley Dale.

Housing starts are forecast to increase by 20 percent in 2010 to a level of 165,940, before falling back by 3 percent in 2011.

On a financial year basis, the number of housing starts is forecast to increase by 22 percent in 2009/10 and 2 percent in 2010/11 to reach a level of 162,600. Starts are forecast to be flat in 2011/12.