The Housing Industry Association (HIA), the voice of Australia’s residential building industry, says that the current low interest rate environment will continue for the foreseeable future.

This prospect is reinforced by the fact that the headline rate of inflation dropped to 1.7 per cent during the December 2014 quarter, the lowest since mid-2012. The two key measures of underlying inflation were a little higher, clocking in at a benign 2.2 per cent and 2.3 per cent respectively.

HIA Senior Economist Shane Garrett explains that the big drop in oil prices over recent months is helping to curb cost of living pressures, adding that fewer price pressures in the economy mean that a policy of very low interest rates is both justified and necessary.

During the December 2014 quarter, the CPI sub-index relating to new dwelling purchases by owner occupiers (excluding land) increased by 4.0 per cent over the previous year. This compares with overall growth of 7.9 per cent in established dwelling prices in the year to December. Consequently, new housing costs are growing at half the rate of existing property.

Observing that land costs over the past year have been responsible for a considerable part of dwelling price growth, Shane Garrett urges quick resolution of issues around land supply and planning to improve housing affordability.