OPINION: THERE is little doubt that a fall in interest rates would have a positive impact on new housing starts. But, despite calls from the development industry for rates to drop next month, there really isn’t any real need to build more new dwellings at present.
Whilst our market was undersupplied in 2009 – we only built enough new homes for 330,000 people, but needed to build for 465,000 people – we have been oversupplying the market since then. Last financial year, we built enough homes for 400,000 people but really only needed to house 310,000.
Further, we consistently overbuilt during the first half of the nineties. Many of these new dwellings were secondary homes – used for holidays and the like – or were built as speculative investments, where the promise of capital growth outweighed the need for a rental return.
The recent drop in population growth has seen the underlying demand for housing drop by a third across Australia since 2009. Queensland and Victoria have experienced even greater falls.
As a result, we now have considerable spare capacity in our housing market. This explains why new dwelling sales continue to slide across the country.
In addition, we no longer need to build as many new homes as we once did. Social and demographic changes – children living at home longer; increasing longevity (coupled with diminishing superannuation balances); an increase in the birth rate (baby bonus impact) and more migrants from countries with traditionally large families – have lifted our household size, resulting in fewer new dwellings per capita.
2011/12 will be a slow year for new housing starts. Just 135,000 new dwellings are expected to be built over the next twelve months. This is 15% less than last year. This level of new supply would comfortably cater for the expected increase of around 325,000 in the Australian population next year. This forecast also assumes stable interest rates for the next six to twelve months.
Forward estimates are for, on average, between 150,000 and 160,000 new housing starts each year over much of the next decade.
Whilst a drop in interest rates would temporarily boost new housing starts, the only real reason why housing starts would need to rise across Australia would be to cater for higher levels of population growth.
By Michael Matusik, director of Matusik Property Insights.*
Property Reviewer on Property Review
