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In his keynote address to the Urban Development Institute of Australia National Congress 2016 in Adelaide on Tuesday, RBA deputy governor Philip Lowe highlighted the interaction between new housing stock and home values.
Mr Lowe said that when he last spoke at the institute back in 2010, the focus was on the pressures in the housing market arising from the “rather unusual situation” of having the growth rate of the population exceed the number of dwellings by a substantial margin.
“Since then, population growth has slowed, and the rate of growth in the dwelling stock has increased so that it now once again exceeds that of the population,” he said.
“Reflecting this increase, the share of GDP accounted for by the building of new dwellings has risen significantly and is now close to the various peaks reached over the past 50 years. Notwithstanding this, with spending on alterations and additions being relatively subdued, overall investment on residential construction remains some way below the previous peaks.”
The increase in the supply of dwellings has come on the back of a large run-up in housing prices in Sydney and Melbourne, Mr Lowe said. But the increase in supply now looks to be contributing to some moderation in the rate of increase in housing prices in these cities.
It is also putting downward pressure on rents.
“The CPI measure of rent inflation running at just 1.2 per cent in 2015, the lowest for 20 years,” Mr Lowe said.
“Whether or not these trends are maintained remains to be seen and so we continue to watch developments in the housing market very closely,” he said.
“However, the overall picture does appear to be one of a better balance between supply and demand than was the case in 2010.”