Australia | Oct 04 2007
By Chris Shaw
The latest housing approvals data have been released today and they show little change to the state of the Australian housing market, meaning the overall shortfall in supply compared to underlying demand remains firmly in place.
Building approvals fell 1.7% in August, an outcome lower than the 0.5% decline the market had expected, with Commonwealth Bank economist Joseph Capurso noting it was again the New South Wales market that was the primary source of disappointment as the other states continue to generate solid performance.
TD Securities senior strategist Joshua Williamson notes the more volatile apartment end of the market that was the primary contributor to the weaker than expected number, as the 0.7% fall in this sector masked a slight improvement in the housing sector.
With demand continuing to outstrip supply Williamson expects house prices to rise further, particularly for established houses. Capurso agrees though suggests while affordability will remain low further price increases are likely to attract investors, who will also be attracted to accelerating rents and low vacancy rates.
ANZ Bank head of financial systems analysis Paul Braddick estimates the current demand for housing is 182,000 approvals a year, so the deficit in terms of approvals stands at around 40,000 annually.
He doesn’t see any improvement in the situation in the short-term given high interest rates and rising costs are impacting on builder margins, but suggests over time the imbalance will force an adjustment in supply. Until this occurs he too expects rents and prices to move higher.
In terms of the impact of the data on monetary conditions, Williamson notes of more importance than housing starts at present are rents, as the increases here are putting additional pressure on inflation.
He continues to suggest the upcoming CPI data due later this month will be of more importance and are likely to be strong enough for the Reserve Bank of Australia (RBA) to lift rates by a further 0.25% at its November meeting.