In a speech in Sydney on Wednesday, Reserve Bank Governor Dr Philip Lowe issued a warning about the current boom in the Australian property market – and raised the possibility of regulators stepping in to address the situation.
Speaking at the Australian Financial Review Business Summit at Sydney’s Hilton, Dr Lowe said the Reserve Bank Board had discussed developments in the housing market at its recent meetings, “including the rising housing prices across most of the country”.
“There are many moving parts at present: record low interest rates; a shift in preferences towards houses and away from apartments; strong demand for housing outside our largest cities; large government incentives for first-home buyers and home builders; and the slowest population growth in a century,” Dr Lowe said.
He said time would tell how these factors would ultimately balance out but warned “history suggests that shifts in population growth can have large effects on the housing market”.
While reiterating that the RBA did not target housing prices, Dr Lowe acknowledged that low interest rates were one of the factors contributing to higher housing prices.
“There are various tools, other than higher interest rates, to address these concerns, leaving monetary policy to maintain its strong focus on the recovery in the economy, jobs and wages,” he said.
He said the RBA was continuing to pay close attention to lending standards and expressed concern for the potential of loosening standards increasing medium-term risks and adding to the upward pressure on prices.
“Reflecting this, the Council of Financial Regulators has indicated that it would consider possible responses should lending standards deteriorate and financial risks increase,” he said.
“We are not at this point, but we are watching carefully.”
Echoing the comments he made following the RBA’s last board meeting earlier this month, Dr Lowe said there were no plans to raise the official cash rate from the current record low rate of 0.1 per cent until the actual inflation was sustainably within the 2-3 per cent range, forecast to be 2024.
In order for that to occur, he said wages growth – which is currently also at a record low of 1.4 per cent – would need to need to be above 3 per cent.
“The Reserve Bank is committed to continuing to provide the necessary assistance and will maintain stimulatory monetary conditions for as long as is necessary,” he said.
“We want to see a return to full employment in Australia and inflation sustainably within the 2 to 3 per cent target range. These are our goals and we are committed to achieving them.
