SYDNEY, Oct 30 (Reuters) - At the Ingleburn Gardens Estate on the outskirts of Sydney, an upmarket housing development complete with pool, concierge, onsite shop and children's playground, the landscaped grounds are marred by large tracts of undeveloped land.
Despite huge demand for housing in the area, just five stages of the 10-stage, 580-house project have been completed more than 20 years after Monarch Investments bought the site.
As eager buyers, emboldened by record low interest rates, spark a surge in Australian house prices, developers and analysts say the real problem is at the other end of the market.
In one of the most sparsely populated countries on earth, finding somewhere to build new homes is a huge struggle.
"There is no bubble," said Peter Icklow, Monarch managing director. "There's insufficient supply of affordable housing; it's simply not viable to build new housing."
Developers face a swathe of obstacles including prohibitive taxes on new builds, a refusal by banks to lend funds, notoriously tight and slow planning permission procedures through local government and a lack of roads and rail infrastructure to make projects financially viable.
The natural environment, such as the national parks surrounding Sydney, is also a barrier.
The shortage in new housing sets Australia apart from other countries, such as the United States, Canada and Britain, where there are also fears of a property price bubble amid a resurgence in demand.
Economists say the upturn in housing market activity follows an unusually extended period of subdued sales during the global financial crisis, while the central bank dismisses bubble talk as "unrealistically alarmist".
Australia hasn't experienced a property market crash since the 1890s despite being one of the most expensive countries relative to wages to own a home, according to commercial data collector Residex.
Still, domestic house prices surged 5.8 percent over the year to mid-September as buyers responded to a series of rate cuts by the Reserve Bank of Australia, delivered to soften the blow from a tail-off in the country's mining investment boom. In Sydney, prices rose 8.2 percent, according to RP Data-Rismark, pushing the capital cities index to a record high.
Worringly for policymakers, housing construction - a major driver of the economy, affecting employment, credit growth and retail spending - has been slower to respond to price rises than the central bank had expected.
The Australian Bureau of Statistics said this month that housing starts, or the commencement of construction, rose 11.2 percent in the year to the end of September, following two consecutive yearly declines.
In the country's capital, Canberra, developer Doma Group recently purchased a site to build up to 120 houses, its fifth development in a major urban regeneration project on the foreshores of Lake Burley Griffin.
Andrew Stewart, regional managing director of real estate firm CBRE, who marketed the site, said he received numerous enquiries.
But a closer read of the housing starts data showed all of the growth, itself from a very low base, occurred in the first half of the year and was unevenly distributed.
While new build starts in the Australian Capital Territory, encompassing Canberra, were up a huge 107 percent in September, they were down 8 percent in New South Wales, the country's most populous state.
Total dwelling approvals, seasonally adjusted, sank by 4.7 percent in August after a strong 10.2 percent rise the previous month, according to the Australian Bureau of Statistics. While the measure is a volatile one, analysts will be watching closely when the data for September is released on Thursday.
Phil Chronican, the Australia CEO of Australia and New Zealand Banking Group, agrees with the RBA that concern about a house price bubble is overstated, but warns the market needs to meet buyer demand with construction.
"To stop this demand exacerbating the rising price trends though, we need to see a supply response," Chronican said in a recent speech to business leaders. "We need more houses and apartments."
Monarch's Icklow and other developers say they would dearly love to comply, but their hands are tied.
Icklow said sales taxes on new builds make them less competitive with existing houses and units, while banks are tightening up lending for projects off the plan.
"The current regulatory and taxation environment combined with ever tightening credit conditions for residential development significantly dilutes the chances of a broad based recovery in housing starts," said Harley Dale, chief economist of the Housing Industry Association.
The HIA forecasts a shortfall in dwellings of around 466,00 by 2020, equivalent to around 40 months of housing construction.
Some economists say Australia should take its cue from its smaller neighbour, New Zealand, where the central bank is taking early steps to prevent overheating following a 10 percent surge in house prices over the past year by introducing limits on leveraged lending.
As well as introducing a 10/80 rule, where only 10 percent of new mortgages written can have loan to valuation ratios of more than 80 percent, it is streamlining approval processes to boost the number of new homes in Auckland, the country's biggest city.
Investors are already pricing in expectations of a rise in construction activity.
Stocks in the building firms sector, which includes Stockland Corp Ltd, Mirvac Group and Lend Lease Corp, have gained an average of 15 percent over the past three months.
In the construction materials sector, which includes James Hardie Industries Ltd and Boral Ltd, shares have risen by an average of 6.3 percent over the same period.
But the companies themselves aren't so optimistic.
One difficulty is that the recent weakness in the market has led many of the major builders and building products companies to cut jobs, reduce or even close operations.
At the same time, a fall in the Australian dollar has pushed up the price of key building materials such as imported timber.
Those factors are likely to increase costs for developers and further lengthen the lag between house price rises and resurgent building activity.
Boral Ltd, which has cut brick and roof tile production by closing and mothballing plants, said this month it expected activity in Australia to be "broadly flat" in fiscal year 2014.
"There has been no noticeable improvement in volumes since the new financial year began and our prognosis for the year is for relatively flat conditions," Fletcher Building Chairman Ralph Waters told shareholders at the company's annual general meeting this month.