Reserve Bank: prepare for even higher house prices
2015-06-16The Reserve Bank has warned of even higher home prices, saying stocks of unsold land suitable for development in Sydney and parts of other cities are getting "unusually low".
"Shortages are most evident in Sydney, where greenfield land releases have not kept pace," the RBA assistant governor Christopher Kent said in an address to the Australian National University on Monday.
"Inflation of building material prices has risen and the bank's liaison suggests that some builders have increased margins," he said. "Inflation in new dwelling costs has risen to be almost 2 percentage points above its average."
Dr Kent said the evidence to date suggested that the two interest rate cuts this year were working as they should, boosting consumer spending and borrowing for housing. But spending on renovations was down and many borrowers were responding to the low interest rates by more quickly paying down their loans.
Households reliant on bank interest were likely to be cutting their spending while those with spare funds may be using them to gear up to invest in housing rather than accept low rates, he said. Business investment remained weak.
Dr Kent's remarks back those of Reserve Bank governor Glenn Stevens, who last week said that some of what was happening in Sydney's housing market was "crazy".
"What is happening in housing in Sydney I find acutely concerning for a host of reasons," he said. "I think it's a social problem."
"Some of what is happening is crazy, but we have a national focus and so that just increases the complexity."
Dr Kent said that away from Sydney and some other pockets of the country, housing was supply responding to low interest rates as it had always done.
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