31 July 2009

Emigrants to Australia and population boom adds to economic growth

New figures suggest increases immigration and population growth means that housing construction in Australia would soon add to economic growth and ease upward pressure on house prices.

New figures suggest increased Australian immigration and population growth means that housing construction in Australia would soon add to economic growth and ease upward pressure on house prices.

Record levels of emigrants to Australia and the highest population growth in 25 years meant there were more people looking for homes at a time when construction has been running well below historical norms.

Approvals to build new homes in Australia jumped a surprisingly strong 9.3 percent in June, and the report also showed a massive 94.5 percent rise in the value of non-residential building, thanks in large part to a government stimulus splurge on school projects.

"It shows the housing market is going to be a major driver of economic growth over the next 12 months," said Brian Redican, a senior economist at Macquarie.

"And the lift to school construction is a reminder of how timely and effective the stimulus has been," he added. The data adds to a string of upbeat reports on household spending and consumer and business confidence which has left the country's central bank sounding ever more confident that the worst of the downturn is over.

Reverve Bank of Australia (RBA) Governor Glenn Stevens this week said risks to the economy were now more balanced, leading the market to price out any chance of more rate cuts.

The central bank cut its key cash rate by 425 basis points between September and April, but investors are now pricing in a chance of a first hike as as early as Christmas.

Indeed, Stevens singled out housing as a problem area, saying it would be "disturbing" if low mortgage rates led only to higher home prices and not increased home building.

Even after June's jump in building approvals, constructions were still 14.3 percent lower than in June last year, but the pace of annual declines has slowed.

There is already plenty of evidence that last year's decline in house prices has come to an end and is being reversed.

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The Australian Visa Bureau is an independent consulting company specialising in helping people with their Australia visa applications.