Housing starts picture looks brighter, HIA says

14 Sep 2009, 7:35 pm   -   Source: AAP
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The number of housing starts is expected to increase over the next two years, but Australia will still be nowhere near meeting demand for housing, a report says.

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The number of housing starts is expected to increase over the next two years, but Australia will still be nowhere near meeting demand for housing, a report says.

The Housing Industry Association (HIA) says in its latest National Outlook report that the number of housing starts is expected grow seven per cent in 2009/10 to 141,660 and by 15 per cent in 2010/11 to 162,850.

The HIA's 2009/10 forecast was largely unchanged from the March quarter outlook, but the 2010/11 estimate was revised upwards from 146,000.

HIA chief economist Harley Dale said a more optimistic outlook for the economy, as shown by recent private sector surveys on business and consumer confidence, was behind the higher estimate for 2010/11.

"There is just a general improvement in mood," Dr Dale said in a statement. "It creates the potential for a broader based recovery, where we get a lot more existing home buyers trading up into the new home market.

"Hopefully by late 2009 and early 2010 we get some investor interest coming back into the market."

Despite the predicted pickup, the 162,850 housing starts in 2010/11 was still well shy of the estimated 190,000 new dwellings the HIA says is needed to satisfy underlying demand.

"Relative to underlying demand the level of housing starts we are forecasting is far from a bullish view," the HIA said. The report said the lack of adequate land supply, high new home taxation and a lack of skilled labour represented "considerable supply side constraints".

Dr Dale said Australia was a "long way from closing the gap" between the number of homes being built and underlying demand. "It doesn't look like we are going to get off to a flying start with this recovery," Dr Dale said.

"We're not talking fast growth in the short term, whereas historically you quite often get quite a fast burst at the start of a recovery and it just doesn't look like it is going to happen."

But Dr Dale said the projected improvement in housing starts, if realised, would take some of the pressure off rising property prices.

The HIA report said Australian housing starts were expected to have fallen by 17 per cent 2008/09 to 131,990.

In October last year, the first home owners grant was increased to $21,000 for those who bought a new home or decided to build their own home. It will be reduced to $14,000 after September 30.

Borrowing costs were also been reduced significantly after the Reserve Bank of Australia cut official interest rates to a 49-year low of three per cent. Dr Dale said the full effects of these measures to support the economy were yet to be felt.

"Since October 2008, when the first home grant was boosted, lending commitments to build new houses have increased by about 60 per cent," he said.

"But local government permits to build new houses have increased by a much more modest 20 per cent, indicating there is a lot of new building work to come into the pipeline."

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