Australia busy building homes, a boon for economy

SYDNEY: Australian new homes starts hit a six-year high last quarter thanks to stimulus spending on public housing, while work in the pipeline suggested the sector would help underpin the economy as a whole going forward.

The lift in home supply could also take some heat out of house prices, a comfort to the Reserve Bank of Australia (RBA) which has been warning against a speculative bubble.

"Having now posted three consecutive quarters of solid gains in starts, we are due for several quarters of robust completions results, which will support economic growth over the coming quarters," said Ben Jarman, an economist at JPMorgan.

Housing accounts for around a tenth of the economy and swings in activity can have a big impact, in part because the sector is very labour-intensive and new homes tend to be kitted out with new furniture.

Wednesday, June 16's data showed builders started work on 42,399 new homes in the three months to March, a rise of 4.3% from the previous quarter. The gain was modestly short of market forecasts, but followed an upwardly revised 16.8% surge in the fourth quarter and a 10.9% rise in the third.

Starts in the private-sector were roughly flat at 38,303, while those for public sector housing leaped 74% as stimulus spending to counter the global credit crisis flowed through to construction. In all, home starts were almost 35% higher than in the first quarter of 2009, the fastest annual pace in eight years.

"Overall, today's data gives us more confidence that the housing sector should contribute to economic growth ahead," said George Tharenou, an economist at UBS.

The economy grew by 2.7% in the first quarter, compared to the same period in 2009, and the central bank has forecast a pick up to 3.25% by year-end.

More homes needed

"Near-term, building approvals suggest another solid rise for home starts this quarter," said Tharenou. Approvals to build new homes surged 43% between May and December last year, leaving a big pipeline of construction still to come.

Growth in approvals has levelled off in the past few months but they still remain 37% above last year's low. Yet analysts and policy makers still reckon that far fewer homes are being built than needed to meet demand as the country's population is expanding at the fastest pace in five decades. The shortage of homes is put at anything from 110,000 to 180,000 and has been projected to reach 300,000 by 2014 if building does not pick up substantially.

The dearth of supply over the last couple of years is one reason home prices eased only slightly during the global financial crisis and speedily recovered afterwards. House prices in the major cities climbed 20% in the 12 months to March, leading the central bank to warn of the dangers of a speculative bubble.

Prices do seem to have cooled a little in the last couple of months, with the RBA pleased to note that auction clearance rates had fallen in May while demand for home loans had sagged.

Figures from property specialist Residex out Wednesday showed house prices nationally rose 0.6% in May, compared to a 1.6% jump in April and a 1.2% increase in March.

"There may be more slowing ahead," said Matthew Hassan, a senior economist at Westpac.

"Swings in finance approvals have usually been a good gauge of demand and tend to impact with a lag of about six months, while the latest auction clearance rates suggest there was a significant softening in market activity in May to June."

If house prices do moderate, it would be one less reason for the RBA to keep lifting interest rates later in the year. — Reuters

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