SYDNEY—The housing affordability crisis plaguing the nation looks set to worsen with figures released pointing to the likelihood of higher rents and house prices.
The data from the Australian Bureau of Statistics (ABS) showed the value of total housing finance approvals fell by 0.3 per cent in August, underpinned by a fall in investor loans, which were down 4.5 per cent in the month.
The Housing Industry Association (HIA) said that on year-on-year basis, activity in the housing sector remained relatively flat.
While lending for construction increased by 2.7 per cent in August, the HIA said the number of construction loans through the middle part of 2007 had not improved at all when compared to the same period last year.
The figures pointed to the continuation of a wide gap between new housing supply and demand.
HIA Chief Economist Harley Dale said the weakness in construction lending figures explained current price pressures in the existing housing market and in rental markets, with plummeting land sales putting the brakes on new residential construction.
"A recovery in new home building is a crucial requirement for the Australian economy but affordability is just so low that there is still no sign of a sustainable recovery emerging," he said.
Mr Dale said the latest result would ensure that already tight rental market conditions would continue, while those looking to buy were also set to suffer higher prices.
"The upward pressure on housing prices and rental costs is set to continue," he said.
And with data showing house prices continue to post strong gains, particularly in Melbourne, Brisbane and Adelaide, the housing affordability crisis looks set to worsen.
Westpac said price growth had been running at annual rates of more than 15 per cent in Melbourne, Brisbane and Adelaide since the start of 2007.
"The surge in prices and interest rate rises is leading to another significant deterioration in affordability," it said.
"Evidence suggests Sydney and Perth housing markets experienced affordability crunches in 2003 and 2006 respectively ... a point where the number of potential buyers who are priced out rises to a level that results in a sharp drop in demand.
"The risk is that Brisbane, Melbourne and Adelaide may follow.
"All of these markets have now seen a larger cumulative deterioration in affordability than Sydney at the peak of its cycle."
Meanwhile, housing finance commitments for owner-occupied housing rose 1.6 cent in August, seasonally adjusted, to 64,365, the ABS said.
Westpac senior economist Andrew Hanlan said housing finance for owner-occupiers surprised on the upside.
But he maintained that the outlook was for the housing industry to remain in a subdued state over the short term.
"We anticipated that demand for housing finance would soften in the wake of the RBA (Reserve Bank of Australia) raising interest rates in August and because of the credit market turmoil," he said.
"While that impact was not evident in August, a fall over September and October remains our view."
Mr Hanlan said that while the August rate hike was likely to have a limited and short-lived impact, the potential short-term effect of the credit market turmoil was more difficult to gauge.
"The risk is that the non-banks, some of which are struggling to raise financing, are forced to cut back on lending.
"The major banks, in time, are likely to gain market share.
"In the short-term the credit market turmoil could well see a net dip in mortgage lending."