SYDNEY, July 14 (Reuters) - Australia, like many rich nations,is in the throes of a painful housing slump but there are peculiarities here that mean the impact on the domestic economy will be a lot less brutal. Crucially there is no hangover of unsold homes in Australia, unlike the United States where a record glut has been driving prices inexorably lower.
If anything, Australia has too few homes to match the demands of a growing population and a record immigration intake, a phenomenon that is keeping house prices near historic highs even as the cost of buying has surged. "Sure, Australia has taken a hit but it's nothing like as bad as in the U.S., UK or New Zealand," said Matthew Hassan, an economist at Westpac.
"In fact there's a pent-up demand for housing because construction has been running below average for some years now," he explained. "That's putting a floor under the market and should ensure that any decline in prices won't be precipitous."
There are no official data for unsold homes in Australia but the Housing Industry Association (HIA) estimates that the industry is currently building around 40,000 fewer homes than are needed to meet population and migration levels.
Since that has been going on for several years, there could actually be a net shortage of around 140,000 homes. In contrast, the United States has a backlog of more than 5 million unsold homes, an all-time high. Indeed, the HIA estimates that 1 million new homes need to be built in Australia over the next five years. "Supply must increase rapidly to meet expected demand, particularly in the capital cities," said HIA's head of policy, Chris Lamont. "Demand for housing is really biting as evidenced by record low vacancy rates in the rental market."
National vacancy rates are hovering around 1 percent, compared to more normal levels of 3 percent. That demand owes much to migration which was a record 177,600 in the year to June. Many of these are skilled migrants with jobs and who aspire to live in decent homes in the major cities.
UNDER-BUILDING The supply of housing has not kept pace in part because the Reserve Bank of Australia (RBA) made it clear early on that a housing bubble would not be tolerated. The central bank began raising interest rates in May 2002 and launched a verbal campaign against housing speculation. The U.S. Federal Reserve, arguing that monetary policy could do nothing about bubbles, did not stop cutting rates until June 2003, when they were at 1 percent.
Home building here duly fell away and has been running below the long-run average for several years now. "In hindsight, the building industry owes a lot to the pre-emptive action of the RBA," said Stephen Roberts, a research director at Lehman Brothers. "It stopped them getting carried away like their American cousins, so the resulting drag on the economy is a lot less." Builders also have lucrative opportunities elsewhere in the booming mining and infrastructure sectors.
