This article is from the Australian Property Journal archive
THE housing crisis continued to be a major source of inflationary pressure as the consumer price index held at 3.4% for a third consecutive month, while analysts suggested the Reserve Bank will “take comfort” in the data in its mission to bring inflation down.
The Australian Bureau of Statistics (ABS)’ February numbers showed rental inflation accelerated to 7.6% on the back of low rental housing supply and record low vacancy rates, while the price of new dwellings is 4.9% higher than a year ago, partly due to cost pressures in the new home building market.
Excluding volatile items, inflation trended downwards from 4.1% to 3.9%, while the trimmed mean inflation showed a small uplift, from 3.8% to 3.9%.
The Reserve Bank’s target range is 2% to 3%, and the central bank held interest rates again at 4.35% last week as inflation, economic and employment data suggested its 13 rate hikes since May 2022 had been making the intended impact.
“The RBA would take comfort in the current trajectory of inflation, with inflation on track to undershoot their Q1 forecast of around 0.8% quarter-on-quarter,” said ANZ economist Madeline Dunk and senior economist Catherine Birch.
“But there are some signs that we may encounter the ‘last mile’ challenge.”
They said the three-month annualised rate had lifted back above the RBA’s target band, aligning with the NAB business survey’s price indicators which suggest the pathway back to target is “non-linear”.
Analysts had described last week’s shift in the RBA’s language around interest rates as “dovish”, but governor Michele Bullock retained a firm line that the board “can’t rule anything in or out” on future movements.
New housing supply key
Master Builders Australia CEO Denita Wawn said the CPI numbers are “further evidence that if we are to win the battle against inflation, we need to pull out all stops to build new homes”.
“Building approvals are too low, meaning more needs to be done to encourage new housing supply.
“Whether it’s detached housing or higher density, the same constraints apply, including planning restrictions, lack of capacity to undertake critical infrastructure so land is home-building ready, high taxes and charges, slow approval processes, and workforce shortages.”
Australia also faces the impossible task of finding 90,000 extra tradies to meet the ambitious National Housing Accord target of delivering 1.2 million new homes over five years from July. In addition, the $10 billion Housing Australia Future Fund, which will run concurrently, aims to deliver 30,000 social housing dwellings, and the 4,000-home Social Housing Accelerator is underway.
Australia’s housing crisis has become all the more difficult to solve amid a surge in population, with ABS data showing an annual natural increase of 111,000 and net overseas migration of 548,800 in the year to the end of September.
Earlier this month, Property Council of Australia CEO Mike Zorbas used his address to the National Press Club to attribute the national housing crisis partly to the “rank incompetence of previous government and parliaments…failing to unlock that supply, failing to anticipate population growth”. The Greens have proposed a $28 billion public developer that they say would compete with private companies and deliver hundreds of thousands of new homes.
The Urban Development Institute of Australia is forecasting the supply of new homes to plummet to just 79,000 completions across the country in 2026, a 26% fall compared to last year.
Engineering construction work done rises
Meanwhile, ABS figures showed engineering construction work done lifted 4.1% quarter-on-quarter in the last three months of 2023.
Private sector work lifted 2.0% to over $17 billion, and public sector work jumped 6.6% to $14.4 billion.
In annual terms, engineering construction overall was 14.3% higher; private work was up 11.7% and public work by 17.4%.
“Economic growth in Australia is weak right now. Were it not for the strong performance of civil and engineering construction, the economy would be fairing even worse,” said Master Builders chief economist Shane Garrett.
“Construction in this area is providing vital support to demand in the economy at a time when it really needs it.
