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REIQ Journal : February 2010
Appetite for new apartments has been resilient, despite interest rate rises. BIS Shrapnel’s Home Buyer Monitor survey, which was conducted after the November 2009 rate rise, showed that 30 per cent of all households looking to purchase a dwelling were investors. This proportion was unchanged from the previous survey in August 2009, indicating that investor appetite was unaffected by the initial rate rises. The low rate of medium and high-density dwelling construction is largely attributable to tighter lending restrictions on development projects. BIS Shrapnel says it is uncertain as to how long it will be before lending restrictions are eased and, even if some improvement were to occur in the near future, it would be some time before supply improves as most medium and high-density dwelling projects take 12 to 18 months to complete. According to Mr Anderson, the forecast growth in rents will complicate the Reserve Bank of Australia’s fight against inflation. “Continued strong growth in residential rentals will limit the potential decline in underlying inflation measures,” he says. “Given that underlying inflation remains high, relative to the Reserve Bank of Australia’s target range, we expect that the escalating shortage of rental properties will be a significant factor contributing to further interest rate rises. “Higher interest rates would dampen the construction of new dwellings, exacerbate the housing shortage, and thereby place upward pressure on rentals. This dilemma is set to become much more evident during 2010.” BIS Shrapnel says the causes of escalating housing costs require close attention from governments at all levels. During the 1990s, the housing component of the Consumer Price Index (CPI) was flat, and did not contribute anything to inflation over the decade. However, over the 10 years since the start of the millennium, the housing component of the CPI has risen by 56 per cent, which is well above overall CPI inflation of 36 per cent. “ To put this in perspective, housing costs have jumped by more than the social ‘bads’ of alcohol and tobacco, for which average prices have risen by 55 per cent over the decade, and are transparently affected by rising government levies,” Mr Anderson says. “ The burden of government charges and policies on housing are more indirect, but pervasive. Both owner-occupiers and renters are being affected and unlike cigarettes and alcohol, housing is not a service that can be picked-up duty free”. REIQ Journal February 2010 37 iNdUstRy ReseARch
December January 2010