Further support for an early August interest rate rise emerged yesterday with the release of building approval data from the ABS. Australian building approvals rose 7.5% to 12,953 units in June, seasonally adjusted, from an upwardly revised 12,048 units in May.

The key factor behind the June rise was a 22.1% increase in the typically volatile multi-unit dwelling approvals. Private sector approvals rose 1.2% to 8,589.

Recent ABS house price data shows house prices are on the way up with strong gains recorded in most capital cities. Perth (32.1%), Darwin (15%) and Hobart (10.5%) recorded the largest percentage increase in the 12 months to March 2007. Henry eagerly anticipates the June results, due to be released on August 8.

With rental vacancy rates at record low levels rent prices are also on the way up due to the lack of supply. The Real Estate Institute of Australia finds that vacancy rates in Australia’s six largest cities are less than 2%, driving up rents by an average 10% for a two-bedroom apartment.

However, Prime Minister Howard will not be drawn on the effect an interest rate rise will have on his chances of re-election later this year.

“I’m not going to speculate about the rise or not, except to say that the reserve bank, in making judgment about interest rates, will look at inflation indicators predominantly. That’s the principle under which decisions are taken by the Reserve Bank in relation to interest rates.”

In the wake of Labor’s housing affordability “summit” last week, the Housing Industry Association — armed with the latest new home sales data — says the problem is getting worse.

A HIA survey of 100 major residential builders and developers found new home sales were down 0.8% in June. Over 12 months, new home sales have fallen 12% during 2006/07. All mainland states except for Queensland (fall of 18.4%) experienced an increase in new homes sales in June, however, they all suffered declines during the last financial year.

HIA managing director Dr Ron Silberberg said he would embrace Kevin Rudd’s $500mil election pledge to help reduce infrastructure costs in the building industry. According to The Age, Dr Silberberg said Labor’s plan would reduce the cost of new dwellings and make it easier for first time buyers to afford their own home.

Yet sceptics remain.

As Henry wrote the day after Labor’s talk-fest on housing affordability, the current situation goes like this:

(i) The problem of housing affordability is no worse than it has been at many times in the past; and

(ii) There is no feasible solution or set of solutions. Mal Brough’s plan for direct Federal help with public housing was announced last Thursday and is probably the only convincing partial solution apart from advice to “work hard, save hard and stay close to your aging home owning relatives.”

Whatever the precise facts on affordability, a rate hike on top of price hikes will almost certainly make the situation worse.

Read more at Henry Thornton