This article is from the Australian Property Journal archive
INVESTMENT in the housing sector has been above the average over 50 years but Australian’s predilection for McMansions meant fewer dwellings were built over the period, according to the Reserve Bank.
RBA assistant governor Philip Lowe, speaking at the UDIA2010 National Congress, warned that Australia is at risk of a further adjustment in housing prices and rents.
Lowe said the challenge ahead is to satisfy the increase in the demand for housing from a growing population, particularly given that the economy is in the upswing cycle.
“Unlike a number of other countries – most notably the United States and Spain – Australia did not have an unsustainable surge in dwelling investment in the middle years of the 2000s that resulted in over-supply of housing,” he continued.
Lowe pointed that the rate of increase in the number of new dwellings has been below the average of the past 50 years and in contrast, the rate of population growth has been around the fastest in 50 years.
“With population growth above average, and growth in the housing stock below average, it is not surprising that there has been upward pressure on housing costs as part of the process of balancing supply and demand,” he added.
“Consistent with this, rental vacancy rates in Australia are low by historical standards, although they have increased a little over the past year. There has also been a reversal of the decades-long trend of fewer people living in each dwelling,”
However, Lowe said the relatively slow growth in the number of dwellings does not reflect historically low levels of dwelling investment.
In fact, the share of GDP devoted to the construction of dwellings over recent years is above the average of the past five decades. However, within total dwelling investment, renovation activity now accounts for a higher share than was the case historically, and the average size and quality of new dwellings has also increased substantially.
“The result of these developments is that for a given share of GDP devoted to housing investment, there is a smaller increase in the number of dwellings than was the case previously. In a sense, as a society there has been a trade-off between quality and quantity; in particular, we have implicitly chosen to build bigger and better-appointed dwellings, rather than more dwellings,” Lowe pointed out.
Lowe said if population growth remains strong and there is no change to the mix of housing that is being constructed, it is likely that Australia will need to devote a higher share of GDP to housing than has been the case historically.
“This raises two important issues that we need to think about. The first is the constraints that exist on increasing the supply of dwellings. If we are to build more dwellings, we need to ensure that planning guidelines and infrastructure provision can accommodate this.
“This will pose challenges for all levels of government. And the second issue is the capacity of the economy to deal with an increase in dwelling construction at a time when investment elsewhere in the economy is also very high. If housing construction is very strong at the same time that the resources sector is expanding, there will be competing demands for a range of skilled workers and specialised services.
“Managing these competing demands and ensuring the adequate supply of workers with appropriate skills will be a challenge,” he concluded.
Australian Property Journal
