RBA Says Housing Affordability a Concern

Rising house prices raise questions on housing affordability

Housing prices look set to rise spurred by rising interest rates and a shortage in housing supply, raising questions on housing affordability.

The Reserve Bank of Australia’s Head of Economic Analysis, Tony Richards said the risk is that we might move towards undesirably strong growth in Australian housing prices.

Mr. Richards said the improvements in housing affordability seen over the last year or so were mainly due to downward movements in interest rates and not housing prices.

“Mortgage rates are particularly low at present and, 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,” he said.

“When they do rise towards more normal levels, discussions on housing affordability will again focus more on the level of housing prices relative to incomes.”

While private homebuilding has picked up since late 2008 on the back of the Rudd government’s first home buyers grant boost, Mr. Richards said more needed to be done to ensure demand did not outstrip supply.

“Population growth and the demand for housing are strong. Furthermore, as the recovery picks up steam, labour shortages in the building industry may again emerge,” he said.

He urged policymakers to do more to stop undesirably strong growth in housing prices by encouraging higher construction volumes and lower growth in prices.