The housing construction sector will gradually pick-up over the next year or two, according to the Reserve Bank of Australia.
In its Statement of Monetary Policy, the RBA said housing loan approvals have declined in recent months, after a period of strength around mid year.
The central body said although recent liaison suggests that the increases in interest rates this year have slowed the pace of recovery in the dwelling construction sector, most available data suggest that activity has been running above the troughs seen around the end of 2005.
The RBA said after declining by around 10% over the two years to the March quarter 2006, dwelling investment increased by 3.7% in the June quarter, with higher spending on both new construction and alterations and additions.
The Monetary Policy said forward-looking indicators suggest a gradual pick-up in construction over the next year.
“In the September quarter, the number of house building approvals was 7% higher than at the end of 2005, while approvals for medium-density dwellings increased by 8% over the same period,” it added.
Meanwhile, the RBA said conditions in residential rental markets remain tight with the nationwide rental vacancy rate around its lowest level since the 1980s.
According to the state real estate institutes, vacancy rates have remained lowest in Adelaide and Perth and have fallen significantly in Sydney and Melbourne over the past year.
“Consistent with movements in vacancy rates, rents for houses and units have increased in most capital cities. The low vacancy rate should lend support to dwelling construction over the medium term,”
The RBA said although house prices picked up in the first half of 2006 but appear to have stabilised more recently.
The APM mix-adjusted measure of house prices was broadly flat in the September quarter, and 7% higher over the year.
Much of the recent growth in prices has been recorded in Perth, where house prices rose by around 30% over the year, although prices also increased moderately in most other state capitals.
Apartment prices were broadly flat over the year to the September quarter, with soft conditions in the larger markets of Melbourne and Sydney offset by growth in other capitals.
Over recent months, auction clearance rates in Sydney and Melbourne have been lower than earlier in the year, possibly reflecting the increases in the cash rate in May and August.
In conclusion, the RBA said recent information suggests little reason to change the Bank’s earlier assessment that in the near term, underlying inflation will continue to run at about 3%.
The Bank said longer term prospects for some moderation in underlying inflation have been improved by the policy actions taken this year.
“The Board will continue, over the months ahead, to assess whether these actions will prove sufficient to achieve the objective of 2–3% inflation over time,” it concluded.
By Kathryn O’Meara
