Thursday, May 06, 2010

Good news out of NSW? Someone's building homes.

At last, good news for Sydney homebuyers.

Council approvals for new houses and apartments jumped to a six-year high in March with a seasonally-adjusted 3814 new dwellings given a tick, the first month to boast more than 3000 since 2007.

In what seems to be a delayed response to government stimulus and a sign that credit is easing more than half the new dwellings were units or flats, a sector that has been in the doldrums since the global financial crisis.

Sydney is the centre of the resurgence with 1834 new homes approved in March, 1077 of them in high rise apartments or flats.

Nationally March saw the biggest activity since October 2003, with a seasonally adjusted 16,597 new homes approved. Of those, 6200 were new units or flats.

"Reports of the demise of dwelling construction would seem to have been exaggerated," said Westpac economist Matthew Hassan...

"However there's a chance the bulk of this rise is a one-off rather than a renewed leg-up."

Mr Hassan said the jump was almost entirely driven by units, "a notoriously volatlie segment that inclues large and lumpy developments. As such the March rise might be followed by a fall in April, although credit data suggests underlying trends may be improving".

ANZ property economist Ange Montalti said the resilience of approvals in the face of successive rate rises showed builders were reacting to fundamentals. "There is a housing shortage," he said. "The population is growing strongly".

"The strong momentum in prices this past year will have given builders confidence that apartment developments can generate required rates of return."

Treasurer Eric Roozendaal welcomed the jump saying it showed NSW "leading the nation in the growth of residential building approvals, another sign the green shoots of recovery are growing in the NSW".

Aaron Gadiel, chief executive of developer lobby group Urban Taskforce, said it was great NSW was "getting away from the abysmal numbers of 2009, but the state still has a long way to go in order to get its housing approvals and construction rates to a reasonable level."

Housing Industry Association economist Ben Phillips said much more needed to be done and forecast even stronger construction, notwithstanding the end of the First Home Buyer Boost.

"Housing starts should be up 18 per cent this year on a very weak 2009. There's a shortfall of about 200,000 houses," he said.

The apparent resurgence in home building will both be welcome and treated warily by the Reserve Bank.

On one hand more homes will reduce pressure on house prices and rents, weakening inflation.

Governor Stevens told a business audience last year he would regard what happened to housing as a measure of his success saying "if all we end up with is higher prices and not many more dwellings it will be very disappointing, indeed quite disturbing."

On the other hand rapid construction will drive up demand for materials and workers at a time when the economic is set to boom.

The Reserve Bank Tuesday lifted its forecast for inflation to the upper end of its target band, indicating that what happened to inflation would guide its future decisions about interest rates now that they were back to "average levels".

Published in today's SMH

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