Former RBA economist warns housing overvalued

by Adam Smith25 Aug 2014
A former RBA official has claimed Australian houses are overvalued by up to 30%.

Former Reserve Bank senior economist Jeremy Lawson has told The Australian Financial Review that Australia's housing market has left it vulnerable to major international economic shocks. Lawson, who is currently global chief economist of British fund manager Standard Life, told The AFR that Australia's property market is 20-30% overvalued.

"[It is] reasonable to assume that future house prices will grow in line with real household ­disposable income as the commodity boom unwinds," Lawson told The AFR.

But house prices have risen faster than disposable incomes, and Lawson argued that this meant housing was overvalued.

“That would imply overvaluation of between 20% and 30%," Lawson said.

Lawson was critical of the RBA, and said easy monetary policy and the reluctance to use macro-prudential tools had seen prices grow too fast.

“Part of the problem is that rates are being relied on to do too much work. Given the risks, I would like to see the RBA and APRA make much more active use of ­macro-prudential instruments. That way you can have both low rates to support the overall economy while maintaining tighter credit conditions for riskier sectors," he told The AFR.