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Demand for houses at record high Overseas migration to blame AUSTRALIA'S housing needs have risen to a new record high of 182,000 new dwellings per annum, according to the latest estimates from BIS Shrapnel, substantially above the 151,000 new dwellings actually commenced in 2006/07.The low rate of dwelling construction relative to underlying demand has now become a factor in the outlook for inflation and interest rates, according to BIS Shrapnel senior manager, Jason Anderson. With rental markets tightening, growth in average rentals is accelerating in all capital cities and Anderson expects this trend will continue into 2007/08, adding further pressure to inflation. The expansion in housing needs is largely due to the new heights being registered for net overseas migration, explained Anderson. BIS Shrapnel forecasts Australia's population gain from net overseas migration will reach 185,000 persons in 2007/08 - the highest annual inflow on record. This inflow comprises both permanent migrants and long-term visitors (workers and students). During the next five years, more than half of Australia's population increase will come from overseas migration (up from 39 per cent during the 1990s). "We believe continued strong employment growth will depend on a high population inflow from other countries," said Anderson. "This means the provision of an adequate supply of housing is a key contributing factor to Australia's long-term economic growth. In particular, with the number of long-term visitors running at a very high level, there is an increasing demand for rental housing." Mr Anderson says the current rate of residential construction is substantially below underlying demand. There were 151,000 national dwelling commencements in 2006/07, and BIS Shrapnel forecasts a similar level of commencements for 2007/08 contributing to a greater deficiency of dwellings. The deficiency is forecast to reach about 100,000 dwellings by June 2008, which would equate to eight months of construction. "The undersupply of housing is leading to an acceleration in rents. As housing rentals are a component of the CPI (comprising 5.3 per cent of the index), this trend is putting upward pressure on inflation," explained Mr Anderson. BIS Shrapnel expects this pressure will grow over the course of 2007/08. National average rentals increased by three per cent over the year to June 2006, with the growth rate picking up to 5.2 per cent over the year to June 2007 (as measured by the rental index component of the CPI). BIS Shrapnel forecasts the Australian Bureau of Statistics (ABS) rental index will show an increase of 8.4 per cent over the year to June 2008. This forecast would contribute an extra 0.2 per cent to the inflation rate by June 2008. "Given the current underlying measures of inflation are high relative to the Reserve Bank of Australia target range, we expect the shortage of rental properties will be a significant factor contributing to a further interest rate rise in the next six months," said Mr Anderson. Eventually, BIS Shrapnel expects the rise in rentals will be a factor behind a recovery in dwelling construction from 2009, as a rising number of tenants elect to become owner-occupiers, and growth in rentals attract investors back to the market. |
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