Robust state of home construction

HOME building has been big business in Victoria. Between the start of 2008 and the end of March this year, Victoria made up one third of Australia's dwelling starts despite the state making up 25 per cent of the nation's population increase.

The number of dwelling starts fell 18.4 per cent between June 2011 and June 2012, but housing construction in Victoria is 6 per cent up on the decade average.

The surge in Victoria's new home building started in the June quarter of 2009.

NSW and Queensland also had a sharp increase in dwelling construction at the same time, but nowhere near Victoria's.

Even a year earlier the trend in Victoria was quite different, with dwelling construction holding firm during the global financial crisis while it fell away in the other major states.

In the 2011/12 financial year, 60 per cent of Victoria's housing starts were houses and the rest were units and apartments.

Before 2008, the proportion of starts for houses averaged about 75 per cent.

The recent narrowing in the proportion of houses and other dwellings is probably due to a surge in inner-city unit development.

Victoria's dwelling constructions have been much more responsive to the housing market cycle instead of population growth.

Victoria's population growth reached a peak in March 2009, with 31,089 new residents moving to the state in three months.

By June 2010 the population growth had fallen by just more than 66 per cent, while at the same time housing starts increased 50 per cent.

Conversely, now that population growth is again ramping up, housing starts in Victoria are winding back.

The rate of home construction in Victoria has raised the spectre of housing oversupply. However, that may not be the case.

The National Housing Supply Council - in its June 2012 Housing Supply and Affordability Key Indicators publication - shows Victoria's housing market was undersupplied to the tune of about 10,000 dwellings.

The findings show Victoria's housing undersupply had narrowed significantly since 2009 but there is still a shortfall in housing due to the underbuilding of previous years.

It is important to note that the National Housing Supply Council research into housing supply is currently factoring in the latest Census data.

It will be interesting to see if the updated analysis will show a similar outcome to the June report.

Real Estate Institute of Australia data shows vacancy rates across Melbourne were tracking at 1.8 per cent in June.

That's the same vacancy rate as Sydney and is equal second to the lowest vacancy rate in the country, which is in Darwin. The low vacancy rate suggests housing supply levels may not be as bloated as some have suggested.

The tight rental market should drive rental yields up -- great news for investors, not so great for renters.

Tim Lawless is RP Data National Research Director

Source: http://www.dailytelegraph.com.au/realestate/robust-state-of-home-construction/story-fncv6x1p-1226512949355