New-house demand outstrips supply

SYDNEY: Construction of new homes across Australia will struggle to keep up with demand this year, as lending constraints and Government regulations limit development of new projects, says BIS Shrapnel economist Jason Anderson.

Some 159,000 new houses and apartments will be built in the year ending June 30, up from 131,346 a year earlier, forecasts from the Sydney-based research and forecasting company show.

The 21 per cent increase will lag behind demand for new properties, which will exceed 200,000 this year, Anderson says.

"At the moment there's a relatively long lag between demand and rate of construction," he said. "We don't think the numbers will decline from here, but the really big rise we need hasn't come through."

House and apartment construction remained sluggish between February 2008 and last July, and dwelling starts saw declines into late last year, as banks curtailed lending and the global financial crisis kept development in check.

Construction of new homes rose 9.4 per cent in the third quarter from the previous three months, according to the Australian Bureau of Statistics, the first increase in a year.

Sales of newly built properties doubled in the December quarter from a year earlier, outpacing the 40 per cent increase in existing-home transactions, Anderson said.

The jump was driven by the first home buyers' grant, which favoured purchases of new properties, he said.

Higher prices for existing properties relative to land and building costs in some parts of the country also drove demand for new houses, Anderson said.

The proportion of Australians struggling to make their mortgage payments rose to 16 per cent in November from 11.7 per cent in May, the Mortgage and Finance Association of Australia said on Thursday, as increasing property prices and interest rates took a bigger chunk out of homeowners' incomes.

Australia has six of the world's 10 most unaffordable housing markets among six countries in the annual Demographia International Housing Affordability Survey.

The report, which compared 272 markets in the US, UK, Canada, Ireland, New Zealand and Australia in the third quarter of last year, blamed land use regulation, "which has virtually eliminated affordable land for building" in Australia.

"Today, the median income household would be required to pay more than 50 per cent of its income to service a new mortgage on the median priced house in Sydney or Melbourne," authors Wendell Cox, based in St Louis, and Hugh Pavletich, based in Christchurch, wrote.

Loan approvals for construction surpassed those for established homes by two to one in the six months to October, while loans for established homes gained 33 per cent, BIS Shrapnel data show.

- BLOOMBERG