THE new home building industry will be weak in the short-term, from higher interest rates, wages and the prices of construction materials, the national housing industry's body says.
But, at the same time, the amount of money being spent on renovations is heading to record highs.
Increases in borrowing costs and building outlays had led to a wider gap between the number of new houses needed and how many were being built, the Housing Industry of Australia (HIA) said in its March quarter HIA National Outlook report.
HIA chief economist Harley Dale said it was improbable that the new home building cycle across Australian would turn up before 2009/10.
"Australia is enjoying its 17th year of economic expansion at the same time as the weakness in new home building looks set to last for an unprecedented five consecutive years," Mr Dale said.
New housing starts were forecast to be flat over the next 12 months, but policies should be introduced to make it rise sooner as the last positive building cycle ended in 2003/4, he said.
"The lack of new housing supply is driving up rents and is holding up real estate prices for existing housing stock.
"The chronic shortage of housing stock is generating a real social problem via a dislocating impact on lower income households," Mr Dale said.
"Policies on the table need to translate into activity on building sites, in a matter of months not a matter of years."
But the renovations sector is strong, the opposite of building new homes, Mr Dale said.
"Total investment in renovations is expected to post growth of four per cent in 2007/08 to surpass the $30 billion mark for the first time," he said.
"In part, the health of renovations is fuelled by astronomical transaction charges on property coupled with taxes and charges on new residential dwellings."
Fewer available houses would stop current prices from plummeting, while the recent interest rate rises would stop existing house prices rising too much, Mr Dale said.
"Talk of widespread falls in house prices is way off the mark," he said.
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