Lower rates helping building sector - RBA

Written By Unknown on Kamis, 14 Maret 2013 | 15.02

LOWER interest rates have been helping the residential building market to recover, with prices in many markets rising, a Reserve Bank of Australia (RBA) official says.

RBA assistant governor (economic) Dr Christopher Kent said dwelling construction was beginning to pick up and he expected further growth in the months ahead.

"In line with this, our expectation is that there will be a further gradual increase in dwelling construction activity over this year and the next," Dr Kent said in a speech to the Australian Institute of Building at the University of Technology, Sydney.

"This moderate growth in dwelling investment will play some role in helping to support a gradual pick-up in economic growth more broadly from what is expected to be a rate a little below trend this year."

The RBA has cut the cash rate six times since November 2011, the most recent reduction being a quarter of a percentage point to three per cent in December.

"Overall, the data over recent months suggest that demand in the established housing market is strengthening gradually," Dr Kent said on Thursday night.

"This general strengthening has been helped, no doubt, by 175 basis points worth of cuts to the cash rate since late 2011, and the decline in mortgage interest rates that has followed from these cuts."

However, he warned that trends in housing finance indicate that the next upturn in the housing sector would not be as strong as previous increases.

"Lower interest rates have given households more scope to make payments on their mortgages ahead of schedule," Dr Kent said.

"This means that for a given growth rate of new lending, credit growth will be a bit lower than otherwise.

"From early 2012, shortly after mortgage rates started to decline, owner-occupier housing credit has been growing at a slower pace than investor housing credit."

Dr Kent said there has been stronger growth in approvals for higher-density housing, such as apartment blocks, since early 2012.

He said there had been little sign of a rise in approvals for detached houses.

"This may be an early indication of a new trend in the housing market," he said.

"As the price of land has increased relative to incomes over the past few decades, it makes sense that there is an incentive to economise on the use of land, that is, by living in higher-density housing.

Dr Kent said there may have also been a shift in people's preferences towards living closer to the city in flats and townhouses to save on travel time and take advantage of the better infrastructure.


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