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Construction forecast positive, but affordability still a concern 16/11/2013

Despite above average dwelling construction expected next year, an under-supply of affordable housing for rent and home ownership persists, according to the latest Housing Industry Forecasting Group report.

The Housing Industry Forecasting Group (HIFG) consists of industry and government representatives who collate data and attempt to polish up their crystal ball to forecast the delivery of residential property over the year ahead. 

In their report released last week all the signals are green with dwelling commencements up 24 per cent on the previous year, dwelling approvals up 27 per cent year-on-year to August and First Home Owner Grants increasing 33 per cent. 

Based purely on demographic factors, the underlying shortage of properties has eased slightly to 28,000 however we are short 32,000 in Perth balanced by a surplus of 5,000 in regional areas.  The real shortage is harder to calculate as many people make alternative arrangements such as shared housing.  One of the key indicators of shortage is the rental vacancy rate which has nearly doubled (from an extremely low base) to 3.1 percent.  This demonstrates that, whilst we don’t have the number of dwellings we need, renters have adjusted their strategies.

Affordability remains an issue although low interest rates have helped.  The median income for a Perth household is $83,600 which translates into the purchasing power for a $376,000 dwelling. 

It is more challenging when you look into the rental market.  Whilst a household meeting the median income can afford the median rent, a person who is just above the income limit for public housing would be able to access less than one percent of the new rental listings in the September quarter.

Other interesting data in this report includes dwelling demolitions. Many demolitions result in the construction of more than one dwelling so they are an indicator of activity. In 2007/08, when the pre-GFC money was flowing into property, demotions peaked at 2,670 then fell 28 percent the following year.  Demolitions have recovered to 2,191.

Resales of land back into the market is also of note with a return to the longer term levels of 10-12 per cent, down from the frantic period during the boom when resales hit 22 per cent . 

With our population growing by 82,600 people last year, careful monitoring of the supply of land and dwellings is essential.   The HIFG expects 24,000 dwelling commencements this year which is the same as the actual number in 2012/13, then a fall of 6 per cent in 2014/15 with commencements continuing to moderate in 2015/16 to 22,000-23,000.  In short, we will still have a structural shortfall of housing for the foreseeable future.

You can down load the report from here.

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