Rents are growing at a faster rate than property prices, new research has found.

According to RP Data’s latest property pulse, in the five years to February 2011 capital city rents grew faster than property values.

“The debate over affordability in the past five years has intensified, however, what is often missed is the fact that over this time capital city rental rates increased at a greater average annual rate than capital city property values,” RP Data’s research analyst Cameron Kusher said.

Darwin and Melbourne saw the biggest increase in rents, with the average rental rate for houses growing by 10 and 7.5 per cent respectively.

Mr Kusher said the rising rate problem was unlikely to be rectified any time soon.

“With investors and first home buyers reluctant to spend at the moment, coupled with housing affordability stretched because of recent value growth and a weaker period of interest rates and construction for the remainder of 2011, we anticipate that this will put upwards pressure on rents,” he said.

“In addition, rental growth has been sluggish for quite some time – we expect there to be improvements increase the rents.”

Construction is “running out of steam” but should start to pick up, according to BIS Shrapnel’s Economic Outlook Bulletin.

BIS Shrapnel argues there will be huge both upwards and downwards fluctuations in some sectors, but aggregate growth will be “solid rather than spectacular”.

“What we’re seeing is rolling construction cycles, with marked differences between sectors,” says Dr Frank Gelber, chief economist, BIS Shrapnel. “In particular, there is a switch from government-funded to privately-funded investment as the primary growth driver. Through all of this, resources investment has remained strong, despite the pause as we switched from one round of projects to the next through the hiccup of the GFC.”

It’s important to look at the different drivers of individual sectors to understand what’s happening in construction, according to BIS Shrapnel.

The clue to the future, it says, is contained in the switch in activity over the last six months. “Before that, both building and non-building construction had been growing strongly – initially under the impetus of private investment, but driven by public spending in the last two years.”

“The GFC, the domestic credit squeeze, the collapse in confidence, the resultant economic downturn and government stimulus played a major role in the course of events,” says Dr Gelber. “Residential building, the non-residential sector and engineering construction were all affected.”

The bulletin highlights government housing more than tripled during the GFC, offsetting the weakness of the private sector, however expenditure on public housing will halve over the next few years.

“Meanwhile, private sector residential building, having picked up a little through the middle of last year has again stalled,” says Dr Gelber. “Only now, as finance becomes available and we dust off medium and high rise developments, are we seeing the first signs of a resumption in the private residential recovery. Growth should pick up momentum over the next two years.”

The organisation notes non-residential building was strong until the middle of last year. The downturn in the private sector began in early 2009 as projects before the GFC arrived were completed.

“It was extraordinarily strong public expenditure, driven by a doubling of expenditure on schools and strong investment in hospitals, which offset much of this decline until recently,” says BIS Shrapnel. “But now, over the last six months, public expenditure on non-dwelling building has been winding down as projects are completed.”

“With private sector commercial and industrial building slaughtered by the lack of funding throughout the GFC, and still weak, total non-residential building has fallen sharply over the last six months,” says Dr Gelber. “The government sector has further to fall and the real issue is how quickly a recovery in private investment comes through to take its place.”

Non-residential building is expected to fall four per cent this year, followed by a further drop of 10 per cent in the next financial year “as recovery in the private sector is offset by falling government funded construction.”

BIS Shrapnel says public construction has risen by more than 50 per cent over the last two years. It expects it will grow by two per cent this financial year and then drop by 20 per cent over the next two years.

Total private construction is expected to rise by around four per cent this year and average 10 per cent growth over the next two years.

Growth in total construction has moderated to around four per cent this year, BIS Shrapnel says, and a similar result is expected next year before “picking up pace”.

(By:Switzerbroker Bulletin www.switzer.com.au, Published on: Friday, March 04, 2011)

Building approvals slumped dramatically in January, reigniting concerns about the ongoing level of underbuilding in Australia.

According to the Australian Bureau of Statistics, total residential building approvals fell by 15.9 per cent in January to be 24.8 per cent down year on year. The falls were worst in Tasmania with a decline of 34.9 per cent in building approvals, followed by Queensland at 29.9 per cent and South Australia at 20.9 per cent.

Residential building groups have been quick to voice their concern over the figures.

Peter Jones, chief economist at Master Builders said the latest setback was not simply due to weather events but more to do with caution in the face of ongoing interest rate hikes.

“The much anticipated upswing in residential building activity is now in doubt with further fallout expected to dampen prospects for a private sector revival in residential building.

“A long and strong residential building upturn is desperately needed given that we have been underbuilding in Australia over the past six or seven years.”

HIA senior economist Andrew Harvey echoed similar sentiments.

“The January 2011 fall in approvals is the worst monthly decline we have seen since September 2002 and as HIA has been noting for some time now we are in for a considerably weaker year of residential building in 2011,” he said.

“Moreover, it reinforces the urgent need for a dedicated housing ministry in the Gillard Government and serious reforms to the supply side of Australia’s housing market.”

On a more positive note, Harry Charalambous, CEO of Plan Assist, sees opportunity.

“This is a great opportunity for smaller developers who have the foresight to work with Government in filling in the gaps in housing. There is going to be a shortage of housing from this, possibly a shortage right now. In this low point in construction, creating solutions for quality sites will produce returns.”

“To capitalise on these returns, investors and developers should be preparing for the next cycle, preparing resources, preparing contacts, and in particular, cashing up for the next cycle. With demand for quality dwellings growing each month, we see a rosy future for those who have prepared in the low season.”

After a slow start to the year, BIS Shrapnel is predicting that property will pick up speed in second half of 2011.

According to the forecaster’s Building Industry Prospects report, the total number of new dwelling approvals is expected to rise eight per cent to 177,000 in 2011/12 – the highest level since 2003/04.

“The increase in first-home buyer demand from the Federal Government’s First Home Owner’s Grant Boost Scheme, together with various State Government incentives for new dwellings, resulted in new house approvals rising by 22 per cent in 2009/10,” Angie Zigomanis, BIS Shrapnel senior manager, building and construction said.

“However, these incentives only served to pull forward existing demand, with first home buyers who would have otherwise been in the market in 2010 entering the market in 2009 to take advantage of the increased incentives before they expired. As a result, there was a drop off in first home buyers in 2010, which has been evident by the decline in new house approvals through the second half of last year.”

The number of loans approved for first home buyers nationally by the middle of 2010 was nearly 60 per cent below the same (albeit elevated) period in 2009. With first home buyer demand well down, upgrader demand for new dwellings also eased as fewer potential buyers were in the market for their existing properties.

As a result, BIS Shrapnel is forecasting new house approvals to record a decline of 11 per cent in 2010/11. However, strong investor demand is driving further growth of 26 per cent in other dwelling approvals (private medium and high density dwellings).

“With the lower level of construction since the Global Financial Crisis, supply has fallen further behind underlying demand, and there is a rising deficiency of dwelling stock,” said Mr Zigomanis.

“At the same time, there is evidence that that the drop off of first-home buyers has now bottomed out. The latest data for the month of December 2010 indicates that the number of first home buyers improved to a decline of 29 per cent on the previous year, while the actual number of loans given to first-home buyers was also the highest level since December 2009.”

BIS Shrapnel says the improvement in first-home buyer activity should continue through 2011 as the post-Boost Scheme decline in first-home buyers is played out and numbers slowly recover back to long term levels by the second half of the year. Together with the pent up demand from the deficiency of dwelling stock, and an environment where economic growth is picking up and interest rates are stable over the next six months, demand for new houses will subsequently increase as upgraders also take advantage of the stronger demand for their existing dwellings and trade up to a new house.

(By: www.theadviser.com.au,Monday, 21 February 2011)

A new report revealed that town planning systems are performing poorly across the country with a large number of development applications being decided beyond the statutory time frame.

The First National Report on Development Assessment Performance 2008/09 showed that in New South Wales only 44 per cent of applications for higher density residential developments were determined in the statutory time frame, while in Victoria it was 47 per cent.

Only data for these two states was provided.

The Urban Taskforce’s chief executive, Aaron Gadiel, said the figures painted a grim picture of Australian town planning.

“New South Wales took an average of 137 days to assess medium and high density residential developments, while Victoria took 178 days,” he said.

Mr Gadiel said the time taken to deal with subdivisions was also disappointing, although only three states produced figures.

In New South Wales subdivision applications take an average of 120 days, in Victoria 132 days and Western Australian, 100 days.

Mr Gadiel said that in typical town planning fashion, the national report is only now available, 20 months after the end of the 2008/2009 financial year.

“This report only measures a tiny percentage of the activity and the problems inherent in Australia’s town planning system,” he said.

“We hope that future reports have better quality data that is more capable of interstate comparison, with delays in rezonings and strategy implementation also measured.”

The absence of a flexible town planning system and strong urban infrastructure investment was a risk to Australia’s economy, Mr Gadiel said.

“If we get demand shocks, such as a boost in immigration, regional booms, or surges in income, our rigid planning laws allow only one result – rapid price escalation.”

(By: Kate Miller  www.spionline.com.au, Wednesday, 16 February 2011)