Aust rate rise 'will not ease home crisis'

Demand outstrips supply for houses in Sydney. Photo / Mark Mitchell

Australian home prices will keep rising even as the central bank raises interest rates, according to Century21 Real Estate chairman Charles Tarbey.

It will take an increase in housing supply through the release of more land and measures to lower the amount of money and time it takes to develop new projects to ease prices, said Tarbey.

Century21 is the world's biggest residential real estate sales organisation.

"If half the buyers were scared off by rate rises, there's still not enough properties for people who are buying out there," Tarbey said in Sydney.

House prices rose 11 per cent last year, according to RP Data-Rismark, amid an economic recovery that's prompted Reserve Bank of Australia Governor Glenn Stevens to raise the benchmark lending rate five times in the past six meetings.

Stevens said last month that house prices are "getting quite high" and signalled rates might need to rise further to contain inflation.

The central bank yesterday lifted the cash rate to 4.25 per cent from four per cent, following its regular monthly board meeting in Sydney.

Even with the central bank's rate increases, home price growth in 2010 will stay close to the same level as last year, Tarbey said.

"The RBA's rate increases are the right thing to do," Tarbey said. "But more needs to be done in the area of creating an environment for developers to move forward."

The average sale price of houses and apartments its agents sold between January 1 and March 29 this year was A$407,228 ($532,447), an 18.4 per cent increase from the same period in 2009, according to Century21 data.

Australian Treasurer Wayne Swan said that state Treasurers had come to an agreement on tackling a shortage of new housing by making more land available to developers, without providing details, while warning the problem wouldn't be solved in the next year or two.

State and local governments must also do away with fees and regulations that make new projects prohibitively expensive for developers, Tarbey said.

High development costs lead developers to hold on to large land banks while awaiting approval on current projects, Tarbey said.

"If the red tape was removed, a lot of developers could come into the marketplace in the next 12 to 24 months," he said.

Some 200,000 homes are needed to make up for shortfalls from past years, in addition to the 155,000 that must be built every year to keep up with demand, Caryn Kakas, executive director of the Residential Development Council, said in an interview last month.

That compares with a Housing Industry Association estimate of 130,630 housing starts in 2009.

- BLOOMBERG