Home Shortage Warning
Date: 11 March 2010


A Greater share of the economy needs to be devoted to housing to deal with a population boom, otherwise, property prices and rents will rise, the Reserve Bank says.

The new phase of economic expansion also means emerging labour and skills shortages have to be dealt with, RBA assistant governor (economics) Philip Lowe says.

A second challenge was the capacity of the economy to deal with an increase in dwelling construction at a time when investment elsewhere in the economy was very high.

“If housing construction is very strong at the same time that the resources sector is expanding, there will be competing demands for a range of skilled workers and specialised services,” Dr Lowe said.

“Managing these competing demands and ensuring the adequate supply of workers with appropriate skills will be a challenge,” he told the Urban Development Institute of Australia Nation Congress in Sydney yesterday.

Dr Lowe said Australia was likely to devote higher share of its GDP to housing than had been the case historically or risked a further adjustment in housing prices and rents to balance supply and demand.

Unlike most countries rocked by the global financial crisis, Australia did not have an unsustainable surge in dwelling investment in the middle years of the 2000s resulting in oversupply of housing, he said.

Dr Lowe said business investment in Australia was about 16 per cent of gross national product, close to a 40 year peak, and was expected to rise over the next two years.

But the growth rate of dwelling construction had been below the average of the past 50 years,  while population now was increasing at its fastest pace over the same period.

‘If we are to build more dwellings, we need to ensure that planning guidelines and infrastructure provision can accommodate this,” Dr Lowe said.

“This will pose challenges for all levels of government.

“Elsewhere, the challenge is to get private demand to grow on a sustainable basis so that it can catch up with the supply potential of the economy.

“In contrast, for Australia, the main task is to expand the supply side of the economy so that demand can grow solidly without causing inflation to rise.”

Cairns Post e-Paper