Housing supply in Australia is not keeping pace with the growing population, according to research by international property and development consultants Davis Langdon.

In its latest Leading Indicators research, Davis Langdon, which is part of  AECOM, reports that the construction of high rise apartments in Australia is showing signs of recovery from the global financial crisis, but that housing generally is lagging behind growth.

Davis Langdon’s Tender Level Index measures the movement in construction prices associated with projects across Australia.

Davis Langdon's Managing Director Mark Beattie said there had been ongoing development in Australia’s residential sector in 2010, although activity levels varied considerably across the states.

"The underlying fundamentals of the sector remain strong but some forward indicators, such as approvals, have weakened in recent months," he said.

"There are also indicators of a return to equilibrium in terms of capital growth rates for many housing markets, following the peak growth over the last year."

First home buyer numbers remain low, while housing finance trends show some uncertainty of investors returning to the market, and in regions where prices have fallen, would-be sellers are choosing to lease properties to the tight rental market rather than sell into a slightly weakened demand in the sector.

Davis Langdon’s Australian and New Zealand Research Manager, Michael Skelton, said population growth continued to be a key factor in the current demand for housing in Australia.

"Even though net migration rates softened considerably in 2010 from their peak in 2008, Australia’s average annual population growth over the last five years was 387,000 per annum – a 57% rise on the previous five year average of 246,000," he said.

"These factors combined suggest that the housing supply side is not keeping up with demand. However, it’s the supply-side constraints that appear to be the issue, rather than healthy population growth."

The Davis Langdon research showed that construction costs continued to be patchy across the country, with regional factors impacting on the various capital cities.

Highest cost rises are expected in Melbourne, with numerous high rise residential projects in the pipeline, and Canberra where strong demand for residential construction continues. Tender prices in these two cities are tipped to increase by approximately 4% over the next four quarters.

Brisbane and Adelaide are expected to see slightly more modest growth in construction costs, with prices to remain competitive in the short to medium term and increases between 2% and 3% likely over the next 12 months.

Continued high net migration into South-East Queensland and a lack of housing stock is driving demand for residential accommodation in Brisbane, while in Adelaide cost escalation is likely to remain low because of the effects of the economic stimulus wind back and a balanced supply and demand for dwellings in the state.

Tender pricing in Darwin is also predicted to inch up slowly over the coming quarters, rising by two to three per cent.

In Sydney, Perth and Hobart activity continues to suppress prices and contractors are finding it harder to absorb ongoing cost increases in materials and labour, and are only passing on escalation required to maintain an acceptable margin. Davis Langdon forecasts flat to minimal cost increases in these cities over the next 12 months.

For further information, contact Meaghan Jones on +61 3 9933 8800 or email mjones2@davislangdon.com.au 

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Davis Langdon has compiled the information in this document from a number of sources.  Davis Langdon has not verified that such information is correct, accurate or complete. Whilst every care has been taken in the preparation of this document, Davis Langdon makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Historical trends are not necessarily a reliable indicator for actual future performance. Davis Langdon accepts no liability or responsibility to any party in respect of this document.  This document has been prepared for the purpose of providing general information, without taking account of any particular person’s objectives, situation or needs. You should seek professional advice having regard to your own objectives, situation and needs before taking any action.

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