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Home building out pacing previous booms

by
August 10, 2017

Home building in Australia peaked in 2016, but a lack of housing supply still keeps prices high.

Driving around Canberra you wonder sometimes how developers are going to fill the numerous new blocks of apartments under construction.

But wondering about a block here and there pales into insignificance when travelling in China.

A coach ride down the coast of the Fujian Province, from its capital Fuzhou to the business/resort complex on the island of Pingtan, you see kilometre after kilometre after kilometre of new properties.

At first, you wonder what all these people are doing for work with no visible signs of a business.

"Building more houses," quipped one journalist on a tour of this southeast province of China, sponsored by the Australian China Relations Institute-UTS.

Then you realise they're all empty.

It's like a film set.

But it's forward planning in the extreme.

With a province population of nearly 39 million already, in an area just over half the size of Victoria, you can understand why.

Back in Australia, a lack of supply is seen as a key factor driving exorbitant price increases, especially in Sydney and Melbourne.

Yet economists expect home building has already peaked.

In 2015/16, 231,880 homes were built, dwarfing all previous records.

It's resulted in a significant backlog of work to keep the industry busy through 2017 and into 2018, according to the Housing Industry Association.

For 2018/19, the association's senior economist Shane Garrett is forecasting 176,670 new homes, but this imore than were constructed in the previous boom in 2010.

"By any standard, this is still a very elevated level of activity," Garrett told a conference this week.

There are also signs first home buyers are starting to make an impression on the market again after being locked out by rising house prices and strong demand from investors.

New macro-prudential measures taken by the Australian Prudential Regulation Authority, such as limiting interest-only mortgages favoured by investors, and the decision by the NSW and Victorian governments to cut stamp duty is providing some light at the end of the tunnel for budding home buyers.

Figures released this week show the proportion of new entrants taking out a mortgage in June was 15 per cent, up from 14 per cent in May and the highest in two-and-a-half years.

Just over a year ago this gauge matched a record low 12.9 per cent.

However, there is still a long way to go to get to the record high 31.4 per cent set in May 2009.

There is also a growing number of borrowers more generally who are taking out a fixed-rate home loan given all the recent talk about higher interest rates.

In June, the proportion of fixed-rate home loans was 17.5 per cent, the highest since November 2013.

Back in China, a government official was asked by a journalist whether a foreigner could invest in the Pingtan resort.

"We use the land, not own the land, it belongs to the nation," he replied.

It wasn't clear whether that was a "no".

But you are encouraged to come as a tourist.

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