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Housing Shortage Fuel Price Increase

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A fast-approaching residential housing shortage, fueled by the twin forces of a slowdown in construction and population growth, will result in price increases in 2020, industry experts say. Low housing supply could put even more pressure on vacancy rates and further upward pressure on rents and house prices.

Estimates by the Commonwealth Bank suggest an under-supply of apartments from 2020, says CBA economist Kristina Clifton. “On our calculations, the decline in residential construction is taking place at a time when the excess supply of dwellings is relatively small,” Clifton said.

“Despite the massive boom in recent years, residential construction is below average relative to population growth, which increases the attractiveness of new development,” Clifton said.

She credits the housing market turn to the Coalition election win, rate cuts from the Reserve Bank and changes to serviceability metrics from APRA, although there are reports that some developers and prospective investment property buyers are still struggling to obtain finance.

“Given the large size of the pipeline, we had expected construction activity to remain at a pretty high level for most of this year, but it turned down sooner and by more than we had expected,” “The effect of the downturn in housing construction on the broader economy, though, is likely to be somewhat larger than 1 percentage point given the linkages the sector has with other parts of the economy,”says RBA deputy governor Guy Debelle.

Mirvac chief executive Susan Lloyd-Hurwitz says access to credit is critical to prevent a housing shortage within a year while Stockland’s CEO Mark Steinert says: “We need 180,000 dwellings a year to keep up with demand, and it’s not going to happen.”


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