Australian Property News
RBA official identifies housing shortage as key challenge
Posted on Wednesday, March 10 2010 at 4:18 PM
Tackling Australia's housing shortage is one the biggest challenges facing the economy, according to Reserve Bank of Australia (RBA) assistant governor Philip Lowe.
Lowe identified expanding the supply side of the economy and keeping inflation low as the other two major challenges in a speech to the Urban Development Institute of Australia's National Congress.
Australia faces the challenge of satisfying the increase in demand for housing from a growing population amid an economic upswing that has begun with a tight housing market already in place, Lowe says.
"Looking forward, if population growth were to remain strong for an extended period, and we do not change the mix of housing that's being constructed, it's likely that we'll need to devote a higher share of GDP (gross domestic product) to housing than has been the case historically," he says.
"If this doesn't happen, further adjustment in housing prices and rents is likely to occur to balance supply and demand."
"This raises two important issues that we need to think about. The first is the constraints that exist on increasing the supply of dwellings. If we are to build more dwellings, we need to ensure that planning guidelines and infrastructure provision can accommodate this. This will pose challenges for all levels of government."
"And the second issue is the capacity of the economy to deal with an increase in dwelling construction at a time when investment elsewhere in the economy is also very high."
"If housing construction is very strong at the same time that the resources sector is expanding, there will be competing demands for a range of skilled workers and specialised services. Managing these competing demands and ensuring the adequate supply of workers with appropriate skills will be a challenge."
Lowe says Australia's construction cycle and housing prices are in a very different position from many other advanced economies.
"Unlike a number of other countries – most notably the United States and Spain – Australia didn't have an unsustainable surge in dwelling investment in the middle years of the 2000s that resulted in oversupply of housing," he notes.
"Indeed, over recent years, the rate of increase in the number of dwellings has been below the average of the past 50 years. In contrast, the rate of increase in the population has been around the fastest in 50 years."
"Consistent with this, rental vacancy rates in Australia are low by historical standards, although they have increased a little over the past year."
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