RBA’s May 2014 statement: Dwelling investment increasing

The Reserve Bank of Australia has noted that the strong established housing market has stimulated consumption in its latest Statement of Monetary Policy.

In its outlook for 2014-15, the Reserve Bank predicts that low interest rates will continue to support the housing market. Low rates are also expected to boost the construction of new dwellings and household consumption.

According to the Reserve Bank, a “pronounced increase in dwelling investment is underway”, with growth higher than was forecast three months ago. Increasing housing turnover is expected to stimulate renovation activity, which the Bank notes has “to date been quite subdued.”

The market for new housing remains strong, with building approvals also surpassing previous expectations. Forward looking indicators such as loan approvals and first home owner grants for new dwellings are also showing strong growth.

The Reserve Bank cites low interest rates, rising housing prices, average rental yields and first home owner grants for new dwellings as key drivers for housing investment.

Nationally, house price inflation has moderated somewhat in recent months. The Reserve Bank also notes that auction clearance rates have declined from their recent highs, while loan approvals remain stable. According to the Reserve Bank, "it remains to be seen whether these signs of tempering conditions represent a shift to a more sustainable growth rate for housing prices."