Call for interest rate cuts to boost Australian home building

Interest rates need to fall in Australia to boost the country’s housing industry as there will be an acute shortage of homes by the end of the decade if more are not built, it is claimed. The Housing Industry Association, the voice of Australia’s residential building industry said it is disappointed that the Reserve Bank of Australia has kept its key interest rate, the Official Cash Rate, on hold at 2.75%.

‘We are disappointed that the RBA did not cut rates again today following on from last month’s reduction. A reduction in rates would certainly have been warranted as inflation is well within target, while economic activity is struggling in many important sectors like home building,’ said Shane Garrett, HIA’s senior economist. ‘A one off cut in May without immediate follow-up in June simply adds to business and household uncertainty,’ he added.

Garrett explained that the HIA’s recent policy manifesto Housing Australians underlines that house building is substantially lower than a decade ago, despite the fact that the population is at a record high. ‘A continuation of this trend will mean an acute shortage of housing will emerge by the end of this decade. We want further interest rate cuts to follow speedily. It is clear that the reductions so far have been helpful in nudging economic activity in the right direction. More rate reductions will greatly improve the chances of a self sustaining recovery taking hold in house building and other sectors of the economy,’ he said. ‘Stronger activity in residential construction will play a crucial role in providing for Australia’s long term housing needs,’ he concluded.

Quote from PropertyCommunity.com : “House price growth in Australia’s capital cities stagnated in the first quarter of 2013, up 0.1% overall but prices fell in eight cities, according to figures from the Housing Industry Association (HIA).”

The call comes as the latest housing sector figures from RP Data-Rismark show that property prices in Australian cities fell by 1.2% in May but are still 1.1% higher over the first five months of 2013. This follows a 0.5% fall in April and a 2.8% rise in the first three months of 2013. However, values are still 2.9% higher than May last year which is also when the housing market broadly reached a recent low point after values corrected downward by 7.4% from peak to trough.

The fall in prices last month was broad based with all capital cities apart from Perth and Hobart recording a fall in values over the month, and with half of the capital cities recording a fall in values over the quarter. Melbourne stands out as being one of the weakest performers, according to RP Data national research director Tim Lawless. ‘The combined capital city index is stock weighted, meaning that larger cities like Sydney, Melbourne and Brisbane have a larger impact on the aggregated results. With Melbourne dwelling values down by 2.1% over the month and down 1.9% over the last three months, the pull down effect on the aggregated index has been substantial,’ he explained.