The RBA has expressed its shock at the low level of home building over the last year.
In a speech to the ADC Future Summit in Melbourne, Reserve Bank deputy governor Philip Lowe said the Bank has expected stronger growth in consumer demand. While he said aggregate demand grew as anticipated, Lowe pointed out the most of this was driven by the mining sector.
"On the other hand, growth in demand not directly related to mining investment was not as strong as was forecast," he said.
In particular, Lowe expressed surprise at the level of weakness in the housing sector.
"The biggest surprise was probably in terms of home building. We had expected dwelling approvals to pick up gradually over 2011, but this pick-up did not eventuate," he said.
Lowe said a possible explanation of the weak demand was the increasing tendency of consumers to raise their level of savings while deleveraging debt.
"This change in behaviour is having ripple effects through the economy, including through a lowering of expected capital gains on housing. This has made developers, financiers and households less willing to commit to new construction despite rising rental yields, lower prices relative to income and ongoing growth in population," he said.
While Lowe predicted that "improving fundamentals" would eventually see a pick-up in home building, he said forward indicators "do not suggest that this is imminent".
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