Above is an interesting exchange between Ross Elliott and the RBA Governor, Glenn Stevens, in the Q&A session to Wednesday’s speech by Stevens on Australia’s economic conditions and prospects.
As you will note from the above answer, the RBA views rising housing prices as a prerequisite to increasing dwelling construction as the mining boom unwinds. He is also cautiously optimistic that the RBA’s cuts to interest rates won’t lead to prices rising significantly without a commensurate lift in construction levels.
In my view, the fact that dwelling construction remains weak despite significant cuts to interest rates, increased grants to buyers of new homes, and rising home prices, suggests that supply remains unresponsive. It also highlights why there is no substitute for making new housing cheaper and more desirable through lower land values, less onerous planning, and improved infrastructure. Until these fundamental supply-side barriers are addressed, changes to interest rates and credit availability are more likely to manifest in prices rather than construction, hindering the ability of housing to fill the void left as the mining investment boom unwinds.
