Tackling housing supply 'critically important', says RBA

by Julia Corderoy03 Oct 2014
The Reserve Bank of Australia has fronted the Senate Inquiry into Affordable Housing and said supply side factors are “critically important” for sustaining long term housing affordability.

Malcolm Edey, assistant governor of the RBA fronted the Senate yesterday. 

“The factors that I have mentioned so far, such as household incomes and the cost and availability of finance, primarily affect the demand side of the market. In the short to medium term, it is these factors that will tend to have the predominant influence on housing price movements. The reason for that is that the supply side of the market is dominated by a large existing stock of dwellings, and new supply takes time to come on stream,” he said.

“In the longer term, however, supply factors are critically important. It is the supply response that determines the extent to which additional demand results in higher prices over time.”

Addressing the problem will be an uphill battle, according to the central bank, as the country faces persistent and deep-rooted obstacles in this area.

“Our submission highlights that Australia faces a number of longstanding challenges in this area, including regulatory and zoning constraints, inherent geographical barriers and the cost structure of the building industry. There are also obstacles to affordable housing created by Australia's unusually low-density urban structure, though this is gradually changing,” Edey said.

The Reserve Bank is calling for drastic policy overhauls to address both sides of the property market – supply and demand.

“The general point I would make is that we can't improve housing affordability simply by adding to demand. Targeted assistance can certainly help particular groups such as first home buyers, but without a supply-side response, any generalised increase in demand will just be capitalised into prices. Hence an important emphasis in our submission is that due attention needs to be given to supply-side factors in any policy response to perceived problems of affordability,” Edey said.