A stable interest rate environment is working to turn consumer confidence around and sparking a recovery in housing, according to peak building and construction organisation Master Builders Australia.

The Reserve Bank yesterday kept interest rates on hold at 4.75 per cent for the seventh consecutive board meeting.

Master Builders Chief Economist Peter Jones said the latest figures, which show another increase in May, are encouraging as eight months of interest rate stability begins to ease household caution, sparking a much needed turnaround in housing activity.

Mr Jones said, “Loans for construction of dwellings and purchase of new dwellings, combined, were up 5.7 per cent in May, still down 6 per cent on a year ago, but beginning to show signs that interest rates stability is working to engender an upswing in residential building.”


Slow recovery

Despite the improvement seen in recent housing finance numbers, the pace of recovery following the decline suffered in 2009-10 is likely to be slow given the headwinds still facing the industry.

According to Mr Jones, , the interest rate sensitive residential building industry, which is still suffering lingering effects of the credit squeeze, is relying on an extended pause in Reserve Bank monetary policy to shore up consumer confidence and encourage an upswing in housing commitments.

“In an overarching sense, the weak underlying level of housing finance must be of concern to the Federal Government, as it signals that the residential building industry will be unable to meet the serious undersupply of housing that has arisen, thereby risking higher rents and house prices as more people chase less stock.”

He said, “There is an urgent need for governments of all persuasion to address supply side policy failures, otherwise there will be dire consequences for housing affordability.”