House building activity to remain subdued: Mirvac

Rising interest rates, flat house price growth and an insufficient transport system will continue to weigh on traditional house building activity, according to the Mirvac Group.

“Demand was likely to remain biased towards higher-density living,” its latest annual report has forecast.

It was particularly the case in NSW, the home builder suggests. Mirvac has $980 million worth of exchanged residential pre-sales across three states extending to 2014. Some 40% of its 2011 buyers were upgraders and empty nesters. Investors constituted 30% as did first home buyers.

Mirvac’s recent settlements were at a $1.75 million average apartment price, its house settlements average $689,000 and its land settelements averaged $245,000.

Its report noted that NSW dwelling construction has failed to keep pace with growth in population which has contributed to both low dwelling vacancy rates and solid rental growth.

“Reflecting poor housing affordability, long commuting times to work and a changing ethnic mix, the improvement in dwelling approvals has been dominated by units and apartments, a trend which looks set to continue,” it notes.

But Mirvac suggests even though there has been an improvement in dwelling construction, it was likely to be insufficient to keep pace with demand, further increasing the NSW dwelling shortfall.

In Victoria continuing land release, state government grants and robust population growth, had delivered strong growth in residential construction.

“More recently, the strength of dwelling construction has been driven by medium-density dwellings.

“Even though economic conditions in the state remain favourable, more moderate population growth points to a slower pace of construction activity in the future,” Mirvac expects.

The Queensland residential property market had been adversely impacted by a combination of weaker interstate migration, the rising A$, a slowing in net overseas migration, soft economic conditions and natural disasters.

“The near term prospects remain uninspiring but, longer term, the significant investment by the resource companies, in tandem with a pick-up in population growth, should lead to greater impetus in the state economy and the residential housing market.”

Mirvac suggests after significant price increases during the resources boom, house prices in Perth had exhibited the greatest weakness.

“Additionally, the accompanying sharp slowdown in population growth reduced dwelling demand.

“With the second resources investment boom starting to unfold this should herald stronger dwelling demand and, with it, a firming of property prices.”