Construction to stall in Oz

Australian housing construction will stall next year as a lack of land for development, falling demand from first-home buyers and rising interest rates take the steam out of the residential building industry, the Housing Industry Association forecasts.

Housing starts will fall 3 per cent next year from the 165,940 forecast for this year, the HIA, Australia's largest residential building organisation, said.

"The empirical data, observations on the ground, and the slow progress in reducing supply side obstacles all point to the first increase in housing starts in eight years in 2010 reverting to a decline in starts in 2011," chief economist Harley Dale said.

Lending for home building and purchases both dropped in April after the Reserve Bank of Australia raised interest rates six times since early October to 4.5 per cent.

As the impact of the first-home buyer incentives and low interest rates peter out, building activity will slow, Dale said.

A shortage of land and planning delays will make some projects unviable.

Over the next 10 years, Australia needs to build about 420,000 homes more than were built over the past decade to meet demand, he said.

More people are choosing to renovate their existing homes, and growth in this area will rise 7 per cent in the 2010 financial year, Dale said.

It will grow by 4 per cent in the next two years, with activity of about A$36.4 billion ($44.9 billion) in the 2012 financial year, the HIA forecasts.

- Bloomberg