Construction needed to fight off housing bubble

The Reserve Bank of Australia (RBA) has put out the call for greater construction activity, warning that a housing bubble could result if nothing is done. RBA assistant governor Phillip Lowe said if Australia's population growth remains strong, more of the economy would need to be devoted towards housing, presenting challenges both to labour markets and governments.

"If this does not happen, further adjustment in housing prices and rents is likely to occur to balance supply and demand," Mr Lowe said.

Australian home prices surged 13.6% last year, as a strong economy and robust population growth spurred property buyers to push prices higher on limited availability. At the same time bottlenecks in the new home construction have curtailed supply, adding to price pressures. Delays on planning approvals and a shortage of skilled tradesmen - a problem likely to worsen as the mining boom looks set to return – have also been contributing to rising costs in the sector.

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