Australian dwelling investment is showing “tentative signs” of picking up as demand outstrips supply, helping offset a resource-industry slowdown, according to the Reserve Bank of Australia.
“It looks likely that dwelling investment will pick up at a relatively moderate rate in the medium term,” Jonathan Kearns, head of economic analysis at the RBA, said in prepared remarks in Sydney today. The expected increase would “in part offset the smaller contribution to growth that we expect from resource investment in the coming years,” he said.
RBA Governor Glenn Stevens has reduced the benchmark interest rate by 1.5 percentage points since Nov. 1, 2011, to revive industries outside of the resources boom that’s expected to peak next year at a lower level than previously forecast. The rate cuts are showing signs of reviving the nation’s housing market, with mortgage approvals, building permits and residential construction all climbing in September.
Australia’s housing supply has grown at a little more than 1.5 percent for the past 15 years, compared with 2 percent to 3 percent growth in prior decades, Kearns said. That compares with the nation’s population, which has grown at a faster rate over the past seven years than in the preceding 30 years, he said.
The rental market, which serves as an indicator of housing supply, also points to a shortage of housing, he said.
“For the past seven years or so, real rents have been rising and the vacancy rate has been below its long-run average, suggesting the rental market has been quite tight,” he said.
Still, a reluctance by home buyers to take on debt at the same rate as they did in the 1990s and early 2000s, and a higher ratio of prices to income than in previous years, suggest “that it is unlikely that a large increase in prices is in prospect,” Kearns said.