The construction economist, Jerome Casey has warned that the current downturn in the housing market could become a housing bust unless competitive issues in the economy are addressed through Government policy.
Mr Casey says structural difficulties in the economy, in relation to competitiveness, energy and healthcare, have been unmasked by the tailing off in the housing boom.
Writing in the latest edition of Building Industry Bulletin, Mr Casey argues that a stable housing industry needs to be founded on a competitive economy and housing expectations have outrun the economic underpinnings since 2002.
He says economic growth will be constrained until competitiveness problems in the economy are overcome and that this will have a negative impact on house values.
He is predicting house prices will fall 5% this year and by up to a further 10% in 2008, while house completions will drop to 62,000 per year over the next five years.
Properties most vulnerable to sharp falls in value include holiday homes in the West and one-off houses with a 60 minute car drive to work, he says.
According to Mr Casey, unless the Government introduces policies to restore competitiveness, then the cyclical downturn in the property market of 2007 (and which is expected to continue into 2008) will turn into a 'structural housing bust'.
He also notes that thus far, demand for new housing has been dominated by what he terms 'housing insiders' who are either existing house owners or investors, rather than first time buyers.