A key indicator of future home construction dropped in the first half of the year, suggesting the housing market will remain tight in spite of easing home prices.
The volume of land sold decreased by 43% in the first half of 2008, compared with the first half of 2007, according to the Housing Industry Association and property information service RP Data.
Over the same period, home values have eased only 1.2%, the HIA said.
A slumping home construction sector will weigh on economic growth even as the government tries to boost demand by tripling the first home owner's grant.
Housing construction is crucial to the Australian economy because of the number of people it employs and industries - ranging from builders to banks - that contribute to it.
HIA chief economist Harley Dale said that in spite of the stimulus, ''there is ... a real risk that the perennial problems of inadequate land release and excessive planning delays prevent the industry from boosting supply to the extent required over the next 18 months. That would come at a cost to the entire Australian economy".
In addition to the Federal Government's plan announced in October, the Reserve Bank has lowered interest rates 2 percentage points to 5.25% from 7.25% in September as it tries to rekindle home buying activity.
Tomorrow, the RBA will meet to decide on interest rates and economists and traders are expecting a reduction of between 75 and 125 basis points.
Mr Dale said that in spite of the RBA and the government's actions, "The land sales figures confirm that the second half of 2008 will prove to have been a very weak period for new home building."
Consumers are wary taking on more debt as the economy slows and the threat of a recession looms.
Median residential land prices increased by 106% from September 2001 to June 2008, according to the HIA.
In September 2001, when the cost of median land prices was $80,000, home sales hit about 22,000. By June 2008, with the land prices hovering over $160,000, the number of land sales had dropped to about 10,000.
czappone@fairfax.com.au
BusinessDay
