Figures from the latest IRIS Real Estate Report show the region's median house price increased by 8.1 per cent in the year to March 2010, more than making up for the 6.7 per cent decline experienced in the 12 months to March 2009.

Houses in the Austinmer-Thirroul area have recorded the biggest increases, where the median house price is up 11.9 per cent to $632,500.

The report also shows the volume of residential building approvals in the Illawarra continues to claw its way up from the lows of 2009.

IRIS executive director Simon Pomfret said the rise in overall dwelling approvals was driven by an increase in medium density approvals, however he warned it could be some time before the rise in medium density approvals converts into additional stock.

The report shows the region's rental market is desperately in need of the additional accommodation, with the median rent for an Illawarra house reaching $360, up 5.9 per cent over the 12 months to March.

The median rent for a unit hit $280, up 7.7 per cent over the same period.

The shortage was hitting the region's southern suburbs, such as Albion Park, particularly hard where many of the properties were being snapped up by first home buyers.

Despite the overall boost in dwelling approvals, approvals for new houses remain stagnant.

"Approvals for houses have a pulse in terms of land sales and interest, however they are still very low at the moment," Mr Pomfret said.

"Land affordability remains a factor."

In the 12 months to March the median price for a block of land rose 7 per cent to $238,000.

Chair of the Illawarra Chapter of the Property Council Geoff Jones said although dwelling approvals were coming from a very low base it was good news they were headed in the right direction.

Mr Jones said dwelling approvals should continue to rise with high rents and a volatile stock market making bricks and mortar a more attractive option for investors.