Ensuring financial stability is more important, in a low interest rate environment, than helping first home buyers into the property market, the Reserve Bank of Australia has claimed.
Speaking to the House of Representatives Standing Committee on Economics Inquiry into Home Ownership, the RBA
’s head of financial stability department, Luci Ellis recognises the importance of home ownership.
“Outright home ownership is widely regarded as key to avoiding poverty in old age. Before that life stage, home ownership is also regarded as a way to obtain the security of tenure that is so important to the wellbeing of many households…” Ellis said.
Ellis then goes on to recognise housing unaffordability despite the importance of home ownership.
“Whether home ownership is affordable depends on one's definition and is open to debate. But there is no disputing that housing is expensive,” she said.
“It is clear that part of the reason for this is that demand is strong... More recently, demand has been boosted by population growth and by declines in interest rates.”
However, Ellis says maintaining prudent lending and financial stability in a low interest rate and high house price environment is what the regulators and banks should focus on, even to the detriment of first home buyers who are sturggling to get onto the property ladder in such a competitive landscape.
“Nonetheless, while there has been much debate on this issue, from a financial stability point of view it is helpful that there has been no push to improve the position of first home buyers by easing lending standards,” she said.
“As recent experiences in other countries have shown, such a step would probably be counterproductive in the longer run.”
Confirming the recent action by lenders to slow the growth in their investor home loan portfolios, Ellis says property investment has been a main factor in driving up house prices and subsequently locking out first home buyers.
“Investor interest in property has been especially strong in recent years, no doubt partly encouraged by low interest rates and the prospect of (concessionally taxed) capital gains… The result has been that the housing sales market has become unusually concentrated in investor activity, particularly in the larger cities.
“At the margin this has probably priced some aspiring first home buyers from properties they could otherwise acquire.”