Amid the insanity of house prices soaring, the head of the Reserve Bank has had enough of being blamed. With the latest data showing house prices going up faster than ever before, the head of the Reserve Bank has placed the blame squarely in the hands of the federal and state governments.
Just in case you needed more evidence that Australia’s housing market is detached from reality, the latest figures from the bureau of statistics show that were you living in Sydney and had got pregnant last September, by the time you gave birth the median price of a house in Sydney had risen by almost $240,000. Overall residential property prices in the June quarter across Australia rose by nearly 7% – smashing the previous record of 5.5% set in 2009:
In Sydney and Canberra, property prices rose 19% in the past year. In Melbourne they rose 15%, and even in Darwin, which has the slowest growth, they increased a still stunning 13%:
The price rise has absolutely been driven by houses.
In all capital cities except Hobart, the prices of established houses have risen well beyond that of apartments. And yet, with an average rise of 9%, apartments are not exactly sluggish either:
But when you realise the price of houses in Sydney has increased by a quarter in a year, it’s clear the market is completely disconnected from the reality of incomes.
And it is not just Sydney – across Australia house prices are at record or near-record prices. Canberra now has the second-highest median house price of $920,000, but that remains well below Sydney’s median price of $1.19m:
And we’re not at the peak – even lockdowns may only halt the increase temporarily.
This rise was utterly predictable when analysing the growth of housing loans. Housing finance grew by an astonishing 83% in the past year.
And where home loans go, house prices follow:
The link is not one-on-one, so we are not about to see house prices grow by 80% in a year, but should the relationship hold, by the end of the year they could rise by just over 30%:
In Melbourne the relationship is actually stronger than other cities and so there is a chance that by December prices in Melbourne will have risen by more than 40% in the year:
That is insane, and one person has had enough of wearing the blame.
On Tuesday, the governor of the Reserve Bank, Philip Lowe, gave a speech in which he rebuffed suggestions from some “analysts” the RBA “might lift the cash rate to cool the property market”.
Lowe was unequivocable, stating: “I want to be clear that this is not on our agenda.”
He argued that garnering lower housing prices but also fewer jobs and lower wages growth from raising interest rates was “a poor trade-off in the current circumstances”.
But he also gave a bit of a slap to those who blamed the RBA for the surge in prices.
He noted that “society-wide concerns about the level of housing prices are not best addressed through increasing interest rates and curbs on lending”.
Instead, he listed aspects such as “the design of our taxation and social security systems” – ie things such as negative gearing, stamp duty and the exclusion of the family home from retirement asset testing. He also noted supply-side aspects such as “planning and zoning restrictions; the type of dwellings that are built; and the nature of our transportation networks”.
These, he concluded “are all obviously areas outside the domain of monetary policy and the central bank”.
In effect, Lowe was saying if you really want something done about house prices go complain to the federal and state governments.
In effect, he was saying if you really want something done about house prices go complain to the federal and state governments.
The problem, of course – as we saw at the last election – is that efforts to curb taxation incentives get painted as attacks on retirees. But the deeper issue is that the recent house price boom highlights one incontrovertible fact – governments have made it clear even that even if the worst happens, they will bolster the housing market.
Clearly the housing market is not a “free market” with the invisible hand guiding prices – it is very much subjected to government intervention.
House prices may not always go up, but the past year, and what happened during the GFC, shows that governments will do all they can to ensure the housing market does not crash.
That evidence makes property seem a pretty safe investment and one that fosters ever higher prices as government pump the demand side of the market with grants and tax breaks.
Of course, all markets can fall despite government’s best wishes and Lowe wants you to know he is not to blame.
But, for now, the only signs are of greater prices.