RBA governor calls for action to avoid housing bubble

by Julia Corderoy05 Sep 2014
Reserve Bank of Australia governor, Glenn Stevens is the latest person to express concerns over a housing bubble emerging in Australia.

In a speech to the Committee for Economic Development of Australia (CEDA) in Adelaide this week, Stevens said the Bank decided to leave the cash rate unchanged for the 13th month in a row in an attempt to encourage business investment, generate employment and to support demand in the non-mining areas of the economy post the mining boom.

However, in an attempt to boost the economy, he worries that the low-rate environment might be at risk of creating a housing bubble.

“In our efforts to stimulate growth in the real economy, we don't want to foster too much build-up of risk in the financial sector, such that people are over-extended. That could leave the economy exposed to nasty shocks in the future,” he said.

“It is stating the obvious that at present, while we may desire to see a faster reduction in the rate of unemployment, further inflating an already elevated level of housing prices seems an unwise route to try to achieve that,” he added.

Stevens is now urging the government to step up and design policies that can complement the current monetary setting in its efforts to stimulate growth, but will address the collateral effects of sustained accommodative monetary policy.  

“Monetary policy can create conditions of easier funding and help the ability of the financial sector to extend credit. But it can't, for example, add to the supply of land zoned for housing, or improve the responsiveness of the construction sector to demand for additional housing stock.

“Monetary policy can't create the additional infrastructure that most people agree we need. Funding conditions are not, in fact, an impediment to infrastructure. The real issues are governance, risk-sharing and pricing – areas where other policies have to be right,” Stevens said.