I have written about this issue for years--basically the cost of producing a new house in many states is near or above its market-clearing price due to the large increases in local, state and federal government taxes and charges (up to a quarter of the cost of a house in NSW), which means that demand for this product is going to be low/uncertain, developer returns on equity low/uncertain, and thus investment in the supply-side, or the production of new housing, low/uncertain. Economists have consistently overestimated building approvals because they have underestimated the importance of this dynamic. Here is what ANZ says:
"Weaker finance for construction along with recent sharp falls in building approvals point to sluggish building activity through 2011. With selling prices drifting sideways and construction costs rising, margins are being squeezed on lower volumes. This will be tough financially on marginal operators reliant on a more favourable backdrop."
