Property News

Housing recovery delayed by rates and land shortage

16 October 2006

Higher interest rates and land shortages that will cap the boom in Western Australia are expected to delay the housing recovery.

Analysts have downgraded estimates for housing starts, with the Housing Industry Association revising its national forecast from an expected 3 per cent rise for 2006-07, in a survey six months ago, to a 1 per cent drop in a survey released yesterday.

HIA chief economist Harley Dale said that while the majority of housing analysts had expected a recovery this financial year, it would now take longer, with relief for homeowners and investors not arriving until 2007-08.

"We have become quite a lot more bearish largely because the two big markets of NSW and Victoria have been hit by rising interest rates," he said. In Western Australia, the surging housing market will be tempered by land shortages.

The HIA now expects West Australian housing starts to fall 8 per cent this financial year, compared with its forecast six months ago of a 2 per cent drop.

Mr Dale said that while the housing sector would not "nosedive", the interest rate rises this year would delay the recovery in the weaker markets. In Western Australia, housing starts jumped 25 per cent over the past three years, compared with a fall of 37 per cent for NSW over the same period, he said.

"In the resources-poor states, sentiment towards housing has been dented and very low housing affordability is stifling any chance of a recovery in the short term," he said.

Cracks were appearing in the West Australian market, with the number of loans to first-home buyers starting to fall, according to Jason Anderson, an analyst with forecaster BIS Shrapnel. "Typically, there is a three- to six-month lag before dwelling starts begin to follow," he said. BIS Shrapnel sees a cooling West Australian market dragging back national home-building figures until 2008-09, when it forecasts 162,000 housing starts compared with its 2006-07 forecast of 142,000.

Mr Anderson said that at least two years of strong rental growth would be needed to generate the recovery in building activity and give a kick to prices, particularly in the first-home buyers market.

"But it's still a renters' market and I can't see the motivation for people taking on the affordability issue of home ownership (at present)," Mr Anderson said.