Recovery in new housing demand begins

There are signs that demand for new housing is beginning to recover with thanks to the recent announcement of extended government incentives and low interest rates. This is a good sign not just for those of us in real estate but also for those people in related industries such as building and construction.


A recent report from BIS Shrapnel stated a solid increase of 7% in national dwelling approvals has been seen over the three months to March 2009. This is an indication that things are looking up for home building, and the latest demand is increasingly coming from home owners looking to upgrade. Known as “upgraders”, this group consists of those who have sold their properties to first homebuyers recently and as a result are looking for a new home.

Upgraders have been most active in Victoria, where dwelling approvals jumped 22% in the first quarter of 2009. South Australia wasn't far behind, with an 18% increase. Melbourne and Adelaide have especially benefited from lower land prices, as land affordability is much cheaper than in some other capital cities. That contrasts sharply with Sydney, where high land prices have pushed a greater dependence on medium to high density dwellings, and those types of projects just aren't being built fast enough to keep up with the demand in Sydney. 

The slow building in New South Wales has kept supply well below demand, which is a benefit to investors, but to help the economy more needs to be done to encourage building. The governments extension of the first home owner boosts will hopefully go some way towards this.  That said, the global financial crisis has made it much more difficult for developers to access credit, and the plunge in apartment projects has reduced this opportunity for all households, including first homebuyers. 

At the end of the day, residential building is the traditional driver of recovery from recession, so it is vital that policy efforts are focused on this sector. The report from BIS Shrapnel predicts that dwelling approvals throughout Australia will increase 10% during the June quarter which is certainly a good start.  

Posted by Charles Tarbey on 19/05/2009 at 10:42 AM | Categories:

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