Date: 6th December 2011 There is little doubt that home ownership is the cornerstone of the great Australian dream, as it can provide financial and emotional security for households and typically represents their largest lifetime investment. Moreover housing investment also plays a vital role within the economy, as it can influence the pace of general economic growth, while providing an important fiscal and monetary policy nexus between governments and households. This backdrop is useful for home buyers and investors as, at times of uncertainty, we often experience anxiety that a few quarters of falling property prices is going to become a long term decline and derail the great Australian dream. But if we take stock of the numbers, a picture emerges for long term prosperity continuing to have residential real estate as its cornerstone. What comprises the residential building market? The market comprises the construction of new single-unit (detached) housing (principally built by firms in the industry), new multi-unit apartments and townhouses, and alterations and additions to existing dwellings (i.e. home improvements). The numbers are impressive. The value of total work done on residential buildings was about $49.3 billion in 2011-12, which represents flat growth over the past five years (0% per annum), while the value of work done on new single-unit housing construction has contracted by an average 1.5% per annum to currently total $26.8 billion (down 1.5% on the previous year). The number of single-unit housing commencements totals about 97,000 in 2011-12, down by 13.5% on the recent cyclical peak at 112,141 units in 2009-10. Construction of new homes and new buildings such as apartments have been subdued economic conditions, deteriorating affordability and the tightening lending arrangements associated with the global financial crisis and the collapse of the US subprime mortgage market. But some pockets are very, very active. Some inner Sydney suburbs are attracting near 100 percent sales off the plan for units as investors from China compete with local investors. In addition recent changes by the Australian Tax Office in relation to self managed superannuation funds and the trustees’ ability to buy property for fund using borrowed money, is another boost to the industry. The superannuation industry has $1.5 trillion under management and very little of it has been invested in residential real estate. Reconstruction work following the Queensland floods, coupled with strong underlying demand from investors, will support further expansion of the industry ensuring that long term values will not suffer the same fate that over-extended home buyer experienced in the USA and in parts of the UK. That does not mean that successive quarters can reveal negative growth.
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