How is Victoria’s residential market faring?

“On the demand side, house prices in the established market are rising at a pretty solid rate, up about 3 per cent in Melbourne and Sydney. So, it’s a fairly material turnaround,” Mr Gradwell said.

“The latest rate cut announced in early October will also start to flow through the market, providing further support. It shows everything being talked about in the last three months about improved borrowing power and interest rates is having the intended impact.

“The opposite of that strength is weakness on the construction side. Building approvals have been falling for the last three quarters and are at the lowest level since 2012, with further declines likely.

“So, prices are rising on one hand, but it’s hard to get building approvals off the ground – especially medium to high density sales. Pre-sales are really hard to come by. It reflects people’s concerns over building quality and cladding issues, especially in Sydney.”

Mr Drawell noted the east-coast state is “not building as much as we need” to absorb still rapid population growth.

“Remembering also it’s hard to turn the tap on overnight,” he noted.

“Large lead times are required to get projects off the ground.

“Construction – whether it’s housing or infrastructure or commercial property – has large multipliers in terms of flow through to the rest of the economy, which is part of the overall weakness we are seeing.”

Looking towards the end of 2019, Mr Gradwell said he believes prices will keep rising, noting the key reason as there being “fairly solid sentiment” in the market.

“And that’s before the October rate cut will start to flow through the system,” Mr Gradwell said.

“ANZ Research’s latest Housing Update report forecasts annual price growth in Melbourne peaking in mid-2020 in the low double digits.

“A key issue is there is still a real shortage of supply. While the number of listings is picking up, it’s still really low for this time of year, which adds to price pressures. I do think we will eventually start to see new listings and turnover get back to historical normal numbers.

“On the construction side, in the next six months we should start to see approvals tick up again. Historically speaking, every time we’ve seen access to finance improve, it filters through to a pick-up in approvals.

“Given ongoing population growth, especially in Victoria, we have to keep building more housing.”