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New home building not meeting demand for housing in Australia

The HIA Autumn 2015 National Outlook report shows new housing construction is at record levels and is single handedly propping up Australia’s domestic economy.

But HIA chief economist, Harley Dale, said that on-going momentum in 2015 is narrowly driven compared to last year, in terms of both geographical area and dwelling type.

‘It is disappointing that despite record new housing supply, many Australians are being priced out of the market due to the excessive and inefficient taxation and regulation governments’ impose on the new housing sector,’ he pointed out.

‘Super low interest rates are doing their job, but there is a lack of complimentary policy reform. The detached house construction cycle had peaked well below its potential because households can’t pay the cost of waiting up to 14 months for titled land, or multiple months for a simple building approval, or borrow the additional amount required to cover government-imposed gold-plating of user pays infrastructure,’ he explained.

‘A lack of focus on housing policy reform is shutting Australians’ out of their new home at a time when they could borrow responsibly at attractive interest rates and be part of the great Australian dream,’ he added.

New dwelling commencements are projected to see a third consecutive year of growth in 2014/205. An increase of 12.9% is forecast to bring commencements to an all-time high of 205,490. The ultra-low interest rate environment means that there is some upside risk to this forecast.

The latest projections indicate that dwelling commencements will fall by 10.6% in 2015/2016, with a further reduction of 4.7% in 2016/2017. The bulk of the decline will be concentrated in the ‘multi-unit’ market segment.

The further upward momentum to new home building in 2015 is confined to two states, New South Wales and Queensland.

The report also says that detached house commencements have peaked for the cycle at a level of 112,232. There is unrealised demand for detached housing due to a lack of shovel-ready land and a plethora of other supply side obstacles. Detached house commencements would have increased further in 2015 without these barriers to supply.

Across the distinct types of new dwellings constructed, the upward momentum in 2015 is most evident for units of four or more storeys. There is some upward momentum evident for semi-detached/townhouse product.

Housing renovations continue to struggle, increasing by just 0.8% during 2014. For 2014/2015 as a whole, the report expects that the volume of renovations will fall by 4.1% to $27.4 billion. That will be the lowest value since 2001/2002.

Continued low interest rates and an economic recovery will eventually start to lift the renovations market. During 2015/2016 growth of 2.3% is forecast followed by a slight increase of 0.5% during 2016/2017. A further rise of 2.5% in 2017/2018 is projected to bring the value of renovations activity to $28.8 billion.