The Reserve Bank of Australia says the big cuts to interest rates have helped improve housing affordability and are expected to support home building activity later this year.
The head of the RBA's economic analysis department Anthony Richards says the improvement in housing affordability is a result of the large declines in home mortgage rates.
''It is quite clear that purchase affordability has recently improved very significantly in Australia,'' Dr Richards told the fourth annual Housing Congress in Sydney on Thursday.
''The recent sharp improvement in housing affordability clearly mostly reflects the sharp fall in mortgage rates over the past half year.''
The RBA cut the cash rate by 400 basis points between September last year and February.
At the same time, Dr Richards said standard variable housing rates had fallen by about 375 basis points.
The average of interest rates paid on all housing loans, including fixed rate loans, had fallen by about 265 basis points.
Dr Richards said the fall in borrowing rates had reduced the debt servicing burden of households by approximately five% of household disposable income.
''Admittedly, the effect on the net interest payments of the household sector - that is after we take account of the effect on the interest receipts of savers - is smaller,'' Dr Richards said.
''But there is still a significant stimulatory effect from lower interest rates.
Another factor that had helped improve housing affordability, Dr Richards said, was a softening of the Australian housing market.
Dr Richards said overall housing prices in Australia fell by about 3% in 2008, which was much smaller than the double-digit falls seen in the US and UK.
Dr Richards said the ability to expand the supply of housing would be one of the factors that influenced housing affordability over the medium term, with the performance of the home building sector expected to be an important influence on economic activity.
But he expected the recent weakness in building approvals to be ''reflected in further falls in construction activity over the first half of this year'' as the large interest rate cuts work their way through the system.
''The falls in interest rates and improvements in housing affordability that have occurred over the past six months have not really fed through into construction activity yet, but we can expect them to gradually boost home building,'' Dr Richards said.
The slowdown in building approvals was most pronounced for apartments, Dr Richards said, which reflected difficulties in obtaining finance.
''Banks have become more risk averse and have increased the proportion of pre-sales required,'' Dr Richards said.
''More generally, our liaison program has indicated that the tightening in the availability of business finance has been greater for firms in the property sector (especially commercial property) than in other sectors.''
While Dr Richards acknowledged the housing market was ''relatively tight'' given the nationwide rental vacancy rate was about 1.5%, he suspected the undersupply of housing might be ''less than some of the estimates in the public domain''.