Affordability

AUSTRALIA'S central bank chief says housing affordability is improving and that lower interest rates will spur a revival in the building sector.

Reserve Bank of Australia (RBA) governor Glenn Stevens told a bi-annual parliamentary hearing on Friday that while home affordability would improve, house values were not in danger.

"Our housing sector is not overbuilt - instead there is considerable pent-up demand, and affordability is improving quickly," Mr Stevens told the House of Representatives Economics Committee in Canberra.

The RBA chief said recent interest rate cuts would also help the struggling residential building industry as home loans became more popular.

"For ordinary people looking in lower-price areas, (lower) interest rates have improved things a lot from the housing affordability point of view," said.

"I think you'll see the effects of that on housing finance and housing construction in the next couple of years."

Housing Industry Association (HIA) chief executive Chris Lamont said 400 basis points of cuts to the cash interest rate since September, taking it to a current 3.25 per cent, had helped housing affordability.

Mr Stevens said most of the drop in house prices was in the higher end of the market, while the overall market had been resilient.

"House prices have drifted down but they haven't slumped badly," he said.

Standard variable mortgage rates fell below six per cent in February for the first time since the 1960s after the RBA slashed the cash rate to a four-decade low of 3.25 per cent.

Mr Lamont said recent rate cuts and federal government stimulus programs had done more to boost the middle-range of the residential housing market, but the gloomy economic environment would continue to hinder the investment sector.

The Federal Government's earlier $10.4 billion fiscal stimulus package doubled the first home buyer grant for established dwellings to $14,000, and tripled it to $21,000 for newly-built housing.

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