How Does Housing Supply Affect Affordability?

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There have been a fair few questions raised about the state of Sydney’s housing market in recent months. Lending activity is booming as investors and homebuyers from all over the country scramble to secure a slice of real estate in the New South Wales capital. Prices have shattered records and many people are wondering: Will the market ever slow down? And how can the city provide enough homes to meet the soaring demand?

The Reserve Bank of Australia has consistently mentioned swelling values in Sydney as a point of concern, and it’s a question that you’re likely to ask yourself when weighing up your home loan options in the Harbour City. Fortunately, there may be a solution waiting in the wings.

Residential construction to boost affordability

The construction industry has been playing catch up to the level of demand for some time, but new building activity figures from the Australian Bureau of Statistics (ABS) hold promise for homebuyers. Residential building had a bumper year over the course of 2014. The Property Council of Australia has examined the ABS data to find that, in seasonally adjusted terms, the value of construction work done across the country climbed 11.6 per cent over the year to the December quarter.

The news was even better for new home starts. The Property Council revealed that the volume of dwelling commencements across Australia surged 17.9 per cent over the year. Executive Director of Residential Nick Proud said that the number of new homes built in 2014 was 45,000 above the decade average of 153,000 per year. This brought the total to an impressive 197,972 properties for 2014 – and sets a solid benchmark for the months ahead.

“The more new homes we get onto the market, the more the pressure will come off house prices,” Mr Proud said in an April 15 statement.

“What is encouraging in this latest full year data is that construction activity is now catching up with building approvals.”

Starts make headway against building approvals

Research from CoreLogic RP Data has a few points of interest in this regard. Senior Research Analyst Cameron Kusher has identified that the relationship between building approvals and commencements has improved over the past five years, particularly for houses. The likelihood of properties being completed once approved for construction has increased for houses in particular. His study showed that 98.1 per cent of detached homes approved made it through to construction over the past five years, and 97.8 per cent for units.

With these odds in mind, the future is looking bright for new home building and housing affordability. New South Wales alone saw a booming 13.5 per cent increase in the number of new home approvals during February, according to the Housing Industry Association. If these can be translated into building starts, this could go some way towards meeting Sydney’s predicted housing shortage – and your ability to secure a home.

Finding out what you can afford and how to get there can often be a tricky task. With the help of our team of home loan professionals at Police Bank, you can come to a financial solution to fit your home ownership ambitions.