Housing price growth, low lending rates, government assistance for first home buyers and strong population growth are expected to support a substantial increase in new dwelling construction over the period ahead, predicts the Reserve Bank of Australia.
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RBA’s quarterly statement on monetary policy shows housing price inflation has remained strong – consistent with the current low level of interest rates – although nationwide it has eased a bit from the rapid pace seen towards the end of last year.
Price growth has been stronger in Sydney than in other capital cities, while it has slowed in Melbourne and Perth.
Auction clearance rates, which typically move in line with housing prices, are a little lower in recent months, although they remain well above average in Sydney.
But other indicators of conditions in the established housing market have remained strong, RBA said.
“Housing turnover has risen over recent quarters and was around the decade-average level in the December quarter, while average vendor discounts and the average time taken to sell a property have both remained close to their decade lows.”
Strong housing price inflation combined with relatively weak growth of household incomes has led to an increase in the housing price-to-income ratio – in the March quarter, the ratio was around the levels seen over much of the past decade.
“More recently, housing credit growth and the value of housing loan approvals have stabilised, in line with the recent moderation in housing price growth.”
Dwelling investment is beginning to pick up after having been quite weak for a number of years, both as a share of GDP and relative to population growth, RBA said.
“Housing price growth, low lending rates, government assistance for first home buyers and strong population growth are expected to support a substantial increase in new dwelling construction over the period ahead.”
A range of timely indicators point to a strong pick-up in dwelling construction, with the number of building approvals for new private dwellings rising by around 1% in the March quarter, driven by detached house approvals, to be 27% higher over the year.
The RBA seems confident the new housing market will pick up over the year.
Other timely indicators of building activity, such as loan approvals and first home owner grants for new dwellings, have also continued to increase, with the latter buoyed by the redirection of government assistance for first home buyers towards purchases of newly built homes, RBA said.
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