28/07/2009 - 16:04

RBA concern on housing supply

28/07/2009 - 16:04

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Reserve Bank Governor Glenn Stevens has issued a veiled warning about the risks in the housing market – suggesting that if supply doesn’t rise to head off prices it could have disturbing results. This could be read as a subtle dig at the states.

Reserve Bank Governor Glenn Stevens has issued a veiled warning about the risks in the housing market – suggesting that if supply doesn’t rise to head off prices it could have disturbing results.

This could be read as a subtle dig at the states.

Unlike most of the rest of the developed world, house prices in Australia have held up and, indeed, are in the rise, in part because of the generous subsidies to first-home owners as part of the federal stimulus package.

But many in industry believe that a key issue remains in the approvals process for new developments which is a constraint at local and state government level.

That is where builders and developers complain that the big obstacle to supply lies, claiming land access is difficult which inflates the cost of property that has won the green light for construction.

Mr Stevens doesn’t mention the approvals process in his speech today, which only touches on property at the end of his largely positive economic overview.

However, he does warn of the supply-side issues.

“A very real challenge in the near term is the following: how to ensure that the ready availability and low cost of housing finance is translated into more dwellings, not just higher prices,” Mr Stevens said today.

“Given the circumstances – the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs – this ought to be the time when we can add to the dwelling stock without a major run up in prices.

“If we fail to do that – if all we end up with is higher prices and not many more dwellings – then it will be very disappointing, indeed quite disturbing.

“Not only would it confirm that there are serious supply-side impediments to producing one of the things that previous generations of Australians have taken for granted, namely affordable shelter, it would also pose elevated risks of problems of over leverage and asset price deflation down the track.”

 

 

 

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