Australia will endure a soft residential building market in 2011.
According to the Housing Institute of Australia, there are indications that, following a reasonable 2010, the new home building recovery will reverse in 2011.
"The door is being slammed shut on residential building in 2011 through the triple negatives of rising interest rates, tight credit conditions, and a stalled housing policy reform program," HIA chief economist Harley Dale said.
"The combined weight of these adverse influences means Australia is likely to again endure a substantial weakness in new home building conditions.
"This will have flow-on effects across the whole economy."
However, according to Mr Dale, Australia's housing shortage is of greater long-term concern.
"Australia's housing shortage is growing year after year, and even in a more favourable 2009/10 financial year we still added to the cumulative housing supply gap because as a nation we are continually under-building," he said.
HIA economics has updated its projections of the underlying demand for housing, and the results show that with around 161,780 dwellings completed in 2009/10, Australia still fell short of the underlying demand for more than 184,000 dwellings.
Australia fell short by more than 22,000 dwellings in 2009/10 alone, and the annual shortage is estimated to be 16,800 dwellings in 2010/11 and 21,000 dwellings in 2011/12.
"Over the medium to longer term the undersupply of new housing will contribute to a further deterioration in housing affordability for aspiring home buyers and for those in the rental market, and this issue demands urgent attention from governments at all levels," Mr Dale said.