We had expected dwelling approvals to pick up gradually over 2011, but this pick-up did not eventuate. One possible explanation for this is that it is one of the side effects of a return to more traditional savings and borrowing behaviour by households. This change in behaviour is having ripple effects through the economy, including through a lowering of expected capital gains on housing.
This has made developers, financiers and households less willing to commit to new construction despite rising rental yields, lower prices relative to income and ongoing growth in population. While, at some point, the improving fundamentals should generate a pick-up in home building, the recent forward-looking indicators do not suggest that this is imminent.