Improved affordability will underpin housing market resurgence: Gottliebsen

Be ready for a surge in new dwelling starts lead by New South Wales, Victoria and, of course, mining-boosted Western Australia. This revival will boost Australian economic numbers, which may delay further interest rate cuts.

When the figures are calculated we are going to see a big improvement in Australian housing affordability, which will underpin the housing resurgence. And in both NSW and Victoria state government actions will drive sales.

NSW is doubling its first-home buyers’ grant from October 1 and then dropping it 14 months later. It is also providing a grant for the purchase of properties under $650,000. From October these actions will boost the market – which means it will be wobbly for four months.

NSW is also taking steps to try and break the bureaucratic obstacles that curb development. My builder friends tell me the politicians are doing their best but currently there are too many bureaucrats standing in the way. Eventually the politicians will win, particularly as the size of the public service is being reduced.

Victoria is going the other way and will boost figures for the next six months. Victoria is going to end its first-home buyers’ grant on June 30 (the federal grant remains). That action is currently bringing forward a volley of new home buyers anxious to sign up by June 30. Victoria is also releasing new areas of land and it hopes the extra supply will keep land prices down to offset the withdrawal of the grant. I suspect that in 2013 the grant may need to be restored, but that’s down the track.

These grants come at a time when there has been a fall in land values, which increases affordability, and builders are presenting house-and-land packages with much smaller and cheaper houses than was the case a few years ago.

Add to these developments lower interest rates, and there is a big rise in affordability. Whereas the Australian mining and large construction industries have seen big rises in the cost of building, partly a result of bad management and union action, in home building the efficient independent contracting system has been very effective in maintaining and improving productivity rates so prices have not exploded. In some cases prices have fallen.

The non-mining Australia depends on both retail and housing activity. Retail is tough, but at least for the next year there will be a boost in housing.