A massive pipeline of housing construction is expected to help slow soaring home prices in the coming year.
A record $57.6 billion of new homes were approved to be built in the past 12 months, which means over 200,000 dwellings are expected to be constructed across Australia this year.
In May, dwellings approved for construction bounced back from a fall the previous month to rise 2.4 per cent for the month and 17.6 per cent for the year, the Australian Bureau of Statistics said on Wednesday.
Commonwealth Bank senior economist Michael Workman said the yearly increase was “quite extraordinary”, considering that housing construction was already strong.
“Maybe that’s one way to solve that affordability issue that’s getting a lot of attention,” he said.
“Purely from a supply perspective you’d expect to see this enormous addition in housing dampen price rises through this year and into the next.”
However, Mr Workman added that one problem was that most of the new construction was happening in the suburbs rather than highly sought-after inner city and beach-side areas.
So while the building boom is restraining price rises in some part of major cities, there are still strong increases in the areas where people would most like to live, he said.
About half of the homes approved in the latest figures are apartments, with a quarter of them in blocks of more than four storeys.
“Historically that ratio has been closer to 30 per cent, so we’re building very different cities,” Mr Workman said.
Approvals for multi-unit developments, including townhouses and apartment blocks surged 16.6 per cent in May.
But while apartment construction is booming, approvals for private sector houses fell 8.4 per cent.
Housing Industry Association senior economist Shane Garrett said the elevated supply of new homes will need to be maintained to relieve the price pressures of recent years.
“This onus is very much on policymakers here,” he said.
“They must rectify the bottlenecks in the planning system, redress the excessive fees and charges on new residential developments and ensure that the pipeline of residential land will meet the ongoing community demand for new homes.”
Meanwhile, separate data released by CoreLogic RP Data showed home values across Australia’s capital cities climbed almost 9.8 per cent during the 2014/15 financial year, slightly slower than the 10.1 per cent pace recorded in 2013/14.
St George senior economist Jo Horton expects home price rises to continue to ease from the record pace of recent years.
“A flood of new housing supply and recent measures to curb demand among investors may have some impact in limiting house price growth,” she said.
“However, as today’s data shows, demand remains resilient.”
Ms Horton said that the Reserve Bank’s interest rate cuts in February and May will continue to support demand for new housing, as will strong population growth.