Australians lead the way

Posted: September 29, 2009 by fievel in Labels: , ,

Australian House Prices May Rise Too Fast, RBA Says

2009-09-29 04:18:26.445 GMT

By Jacob Greber

Sept. 29 (Bloomberg) -- Australian house prices may surge too fast, hurting low-income families seeking to buy or rent homes, said Anthony Richards, head of economic analysis at the Reserve Bank of Australia.

"Looking forward, the risk is that we might move toward undesirably strong growth in Australian housing prices," Richards said today at a housing conference in Sydney. "This raises a number of concerns, which seem to be widely shared in the community."

Australian house prices rose 4.2 percent in the second quarter from the previous three months, the first increase in five quarters, helped by the lowest borrowing costs in half a century and government grants to first-time buyers. Richards said it's "increasingly clear" Australia has avoided the large drops in property prices seen in other countries.

"This is a good thing, because of the macroeconomic difficulties that have accompanied those price falls in some countries," Richards said. Still, "when the price of housing rises, higher-income households tend to benefit at the expense of lower-income households," he said. "As a nation, we are not really any richer when the price of housing rises, but the more vulnerable tend to be hurt.

"We are in a situation where we would not want to see very strong growth in housing prices -- that would be unhelpful from a social perspective."

Interest Rates

Investors have an 84 percent expectation Governor Glenn Stevens will boost the overnight cash rate target in November by a quarter point to 3.25 percent, according to interbank futures on the Sydney Futures Exchange at 10:39 a.m. While the affordability of housing has improved this year, it will deteriorate when the central bank begins raising the overnight cash rate target from its 49-year low of 3 percent.

"As the bank has noted on a number of occasions, it is not reasonable to expect that interest rates will stay at the current low levels indefinitely," Richards said. "When they do rise toward more normal levels, discussions
on housing affordability will again focus more on the level of housing prices relative to income."

One way of ensuring affordability doesn't climb too fast is to boost supply of new homes.

"It is becoming well understood that supply side factors, in addition to the well-known demand side ones, have contributed to the relatively high level of housing prices in Australia," Richards said.

The challenge facing governments is to ensure more houses are built alongside slower growth in prices, "rather than vice versa," he said. Labor shortages may also emerge in the building industry as the economic recovery improves.

--Editors: John McCluskey, Michael Heath
To contact the reporter for this story:

Jacob Greber in Sydney at +61-2-9777-8635 or

To contact the editor responsible for this story:

Michael Dwyer at +65-6212-1130 or