RBA rebuts doomsayers, says students are driving up house prices
RBA rebuts doomsayers, says students are driving up house prices; Prices have risen faster than consumer prices, but they have not risen materially faster than household incomes
Tweet Topic Started: 28 Oct 2014, 01:43 PM (263 Views)
Demand for student rental accommodation was driving up the premium for inner-city property in Sydney, but housing affordability in Australia generally was manageable, says the head of financial stability at the Reserve Bank of Australia.
Luci Ellis told an urban planning seminar at Sydney University on Monday night that pent-up demand in Sydney and other urban centres for more medium- and high-density living had driven prices for all types of inner-city properties well above the national median.
However, people's ability to service existing mortgages had not changed much in the past 10 years. During that time, houses prices had fallen as well as risen, she said.
"Prices have risen faster than consumer prices, but they have not risen materially faster than household incomes," she said.
She said house prices actually fell in 2004, in the 2009 aftermath of the global financial crisis and then "for an extended period around 2011".
"In Sydney they fell on all three occasions," she said.
"This is not a country where we haven't experienced house price falls; we have experienced house price falls. There is risk in the system that people have already experienced," she said.
"It's simply incorrect to treat the Australian history as if there had never been any kind of downturn."
She said unlike in the US, Ireland and Spain, where the global credit squeeze of 2007 and 2008 had exposed oversupply in housing markets which subsequently crashed, Australia was still struggling to keep up with demand.
Some of this came from foreign students looking for inner-city rental accommodation and graduates who stayed on with working visas.
Although conceding that risks can always build up in the housing market, Ms Ellis kept her distance from any talk of bubbles.
Ms Ellis said doomsayers who warned of the sharp rise in debt to income ratios in Australia over the past four decades ignored financial liberalisation, inflation targeting and the use of household savings to provide emergency buffers.
The current low-interest, low-inflation, high-savings rate environment meant servicing mortgages today was no more onerous than 10 years ago, she said.
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