SYDNEY: Australian home prices will keep rising due to a building and land shortage, according to a unit of the Property Council of Australia.

About 200,000 homes are needed to make up for shortfalls from past years, in addition to the 155,000 that must be built every year to keep up with demand, said Caryn Kakas, executive director of the Residential Development Council.

That compares with a Housing Industry Association estimate of 130,630 housing starts in 2009.

"The only way to stem the increase in home prices is to meet the backlog," Kakas said. "That's going to take at least five to 10 years. We're going to continue to see price growth in the market."

House prices rose 13.6 per cent last year amid an economic recovery that's prompted Reserve Bank Governor Glenn Stevens to raise the benchmark lending rate four times in the past five months.

The land supply shortage, a disconnect between state government policy and communities' wants, and tighter credit conditions brought on by the financial crisis had all contributed to the slowdown in housing construction, Kakas said.

Dwelling starts totalled 97,002 in the first three quarters of 2009, statistics bureau data shows, down from 114,644 in the same period a year earlier. Fourth-quarter 2009 figures will be released on March 17.

As many as 60 per cent of new homes needed to be apartments or townhouses to cater to the growing numbers of smaller and single-person households, Kakas said.

Bank lending has tightened in the wake of the financial crisis, particularly for apartment projects, which are deemed to have higher risk than house and land developments.

For instance, developers were now required to have pre-commitments for as many as 80 per cent of units in a building to get funding, compared with 50 per cent 18 months ago, Kakas said.

Developers, including Sunland Group and Stockland, have seen losses in their apartment businesses over the past few years. Sunland reported a loss before costs of A$586,000 in its Australian multi-storey unit in the six months to December.

Stockland, Australia's largest diversified property group, said on Wednesday it sold its St Kilda Rd apartments development site for A$27.5 million ($36 million) to private developers as part of its plan to start exiting that part of its business. The company would build apartments only as part of mixed-use developments, it said last month.

State governments' emphasis on the need to build higher density developments in major cities hadn't flowed through to the local level, Kakas said.

When developers approached local councils with plans for higher-density projects, they were stymied by community opposition, approval times and high costs, she said.

- BLOOMBERG