Property Market Information: New builds reach record high

By the resi financial blog team, 21 October 2014

Property Market Information: New builds reach record high

Residential construction recovery has reached a great milestone, according to the Housing Industry Association (HIA). 

However, will it do enough to meet strong demand for housing?

Increased housing activity

New starts for home building topped the 180,000 mark for the first time in 20 years for the 2013/14 financial year. Not only was it a bumper year for the construction industry, but it was an anomaly in regards to demand as well. With 182,000 - 187,000 new houses demanded by newly formed households and existing households for the same period, according to the HIA's report "Housing Australia's Future", the level of supply closely mirrored the demand for new housing.

Although levels of supply and demand do not usually match up during any given year, the rate of housing construction currently experienced is a good indicator of meeting demand in the future. The HIA expects similar levels of demand every year between now and 2050.

"The new HIA Economics report Housing Australia's Future estimates that about 186,000 new dwellings will be required annually between now and the year 2050," said HIA senior economist Shane Garrett.

Although a shortage of a few thousand houses per year could certainly make a difference, as an excess demand will lead to decreased housing affordability. Mr Garrett continued: "Even in such a strong upturn, we are still short of this requirement today. This is a stark illustration of the serious supply-side issues which will need addressing."

Supply issues

This is not the first time housing supply issues have been brought to the fore - in the Reserve Bank of Australia's (RBA) opening remarks to the Inquiry into Affordable Housing, held by the Senate Standing Committees on Economics, supply-side issues featured strongly.

The opening remarks to the inquiry held in Canberra on October 2 this year addressed the macro-prudential tools available to the RBA and other regulatory bodies, such as the Australian Prudential Regulation Authority, and the circumstances in which they would be used.

Malcolm Edey, Assistant Governor of the RBA, pointed out that although housing affordability was the issue, special concessions to small groups of buyers, like first home buyers, may exacerbate the problem.

"The general point I would make is that we can't improve housing affordability simply by adding to demand. Targeted assistance can certainly help particular groups such as first home buyers, but without a supply-side response, any generalised increase in demand will just be capitalised into prices," said Mr Edey.

Although the HIA report highlights a huge jump in new construction over the year, the volatility between quarters showed significant peaks and troughs in supply. It is important for the construction industry to bolster its current efforts to remain on track to meeting consumer demand over the coming years.

If you are looking at purchasing a newly built home for your family, make sure to chat to a resi home loan specialist near you for great advice on your home loan needs.

Categories: Home Loans, Property Investment