A general shortage of housing is giving impetus to rising prices, with vacancies low in most major markets and building commencements down.

The Housing Industry Association says the construction of new homes nationwide fell from 225,000 in 2018 to just 174,770 in 2019.

“This is the sharpest contraction experienced by the industry, apart from the reduction caused by the introduction of the GST,” says HIA chief economist Tim Reardon.

“Despite this whopping contraction, we believe that the cycle had just about run its course and the overall housing market reached a turning point at the end of 2019, buoyed by interest rate cuts and house price growth.”

However, Reardon says that the next upswing in home building will not see a return to the activity levels of the boom years, 2014 to 2018.

“These years set a record that will not be eclipsed in the foreseeable future,” he says. “Population growth has pulled back from previous heady days but has nevertheless remained relatively strong, just shy of 400,000 people per annum. This steadier rate of population growth means the pressure for new builds won’t reach the same fever pitch.”

HIA economist Angela Lillicrap says a credit squeeze was a key brake on the previous cycle, and while some restrictions have since loosened there has been a structural tightening of how money is lent in Australia.

“Tighter lending standards are excluding many aspiring home owners from the mortgage market and will continue to adversely impact home ownership rates,” she says.

The reduction in new building is reflected in lower vacancy rates across the nation. The latest data from SQM Research shows vacancy rates fell markedly in January, compared to December, and were also lower than in January 2019.