House prices tipped to jump in 2010 but expert warns housing shortage crisis is growing

The country’s housing shortage is at risk of escalating to a point where it transforms into a serious economic and social issue, a leading economist has warned.

But as unemployment decreases, the likelihood of a price correction becomes unlikely with values expected to rise by as much as 11.8% in Melbourne and 5.5% in Sydney, the two largest housing markets.

BIS Shrapnel senior residential property analyst Angie Zigomanis says the massive shortage needs to be countered quickly, with low-income earners at risk of being shut out of the market.

“This is something the Reserve Bank has been looking at for quite some time, and I guess the concern is that if you don’t address the supply side of the equation well enough, it’s going to raise the raise the crisis and its negative effects.”

“This is pushing more and more people out of the market, it reduces people’s ability to buy and do other things. Remember, this is an economic problem because you’re talking about the increase in value of assets that are already there, not contributing to the capacity of the economy. It’s not like spending money on construction.”

The comments come as BIS predicts values to rise across the country, with a 5.5% increase in Sydney, 11.8% in Melbourne, 4.4% in Brisbane, 3.2% in Adelaide and 5.2% in Perth.

Additionally, the firm says the increase of net migration from 215,000 to 285,000 in 2009 will settle at 230,000 for the 2009-10 year. Zigomanis says this migration increase coupled with high interest rates and restricted credit from banks is only increasing the housing problem.

But he says simply releasing land for purchase won’t be good enough. Zigomanis says both local councils and state governments must be prepared to relax lengthy planning approval processes, and allow the destruction of useless buildings for new properties.

“It isn’t just land on the fringes of suburbs, but inside cities as well. Often you’ll get properties that are taking a long time to go through the planning process, and can miss a price cycle when they could have been developed.”

“Often you’ll also have obsolete industrial sites in the middle of suburbs where a council might use it, but instead businesses could be using modern warehouses that allow forklifts, more equipment and so on. These old ones don’t have to be used.”

Zigomanis also downplays the reality of a price correction, suggesting they only occur in the right economic circumstances when other indicators, such as GDP and unemployment, are performing badly.

“You often do get some sort of correction. I guess the late 1980s is a good example, although it was a very brief one. Usually that sort of correction happens where prices get ahead of themselves but also where a corresponding increase in unemployment forces people to sell. A correction in the housing market isn’t where prices fall like the stock market, but turnover drops so activity stalls, and then wages, etc, increase and catch up.”

“I don’t think that will happen this year. There was a risk it would happen last year due to the financial crisis and possible recession, but you need to be in a position where people are forced to sell and that didn’t happen.”