Builders are expected to break ground on more new housing in the second half of 2009, but a report says the rise in new dwellings being built will do little to alleviate the housing shortage.

The Housing Industry Association’s (HIA) National Outlook report says the number of housing starts was forecast to bottom out at 132,190 for the financial year 2008/09, which would represent a 17 per cent decline on the previous year.

But the nation’s peak residential construction group expects housing commencements to improve to 149,150 in 2009/10 and 158,100 in 2010/11.

“HIA’s forecast takes into account continued land and labour shortages and tough credit conditions for multi-unit developments,” the report, released on Monday, said.

“Continued slow housing conditions are expected over the coming years as a result of a very weak economy and higher unemployment.”

The HIA said were it not for large interest rate cuts and the federal government’s temporary boost to the first home owner grant, “significantly slower growth rates would have been forecast” for 2009/10 and 2010/11.

“The first home owners’ boost, mortgage rates at a 40-year low, and the housing components of the federal government’s national building and jobs plan have the capacity to deliver a moderate recovery in residential activity,” HIA chief economist Harley Dale said in a statement.

But Dr Dale said current housing conditions remained extremely weak.

Despite the expected pickup in activity, the HIA said increased supply of housing would still fail to meet underlying demand.

The HIA said Australia needed to build at least 190,000 new homes each year to keep up with demand flowing from a larger population and trend towards fewer persons per household.

The federal government’s earlier fiscal stimulus package, unveiled in October last year, doubled the first home buyer subsidy for established dwellings to $14,000 and tripled it to $21,000 for newly built homes.

The boost was due to end on June 30 this year.

The Reserve Bank of Australia (RBA) has slashed interest rates by 400 basis points since September last year, taking the cash rate to a 45-year low of 3.25 per cent.

The HIA said the key to any recovery in the housing sector was the performance of the labour market.

“One of the biggest risks to our housing starts forecast is a higher-than-anticipated unemployment rate,” the HIA said.

“This would push down the level of housing starts and potentially push out the timing of a new home building recovery.”

The HIA said a “worse case scenario” would be the nation’s jobless rate reaching nine per cent.

RBA governor Glenn Stevens told a parliamentary committee on Friday he expected recent rate cuts to help the construction industry.

“For ordinary people looking in lower-price areas, (lower) interest rates have improved things a lot from the housing affordability point of view,” Mr Stevens told the House of Representatives Economics Committee in Canberra.

“I think you’ll see the effects of that on housing finance and housing construction in the next couple of years.”

AAP