From Sydney Morning Domain:
Federal Treasurer Joe Hockey has again dismissed the idea that a property bubble is forming in Australia, saying that rising prices were just a reaction to lack of supply.
Echoing the thoughts of many private sector economists and bankers in the country, Mr Hockey said the idea that households and investors were taking on too much debt to buy houses was wrong.
“I’m not so sure it’s credit fuelled,” he said during a seminar in Sydney. “There’s a lot of cash going into property now.”
“Australia fundamentally doesn’t produce enough houses to meet demand,” the Treasurer said.
“It is just an infinite mantra for international commentators, for analysts based overseas to say ‘well, you know, there’s a bit of a housing bubble emerging in Australia’.
“That is rather a lazy analysis, because fundamentally we don’t have enough supply to meet demand.
“That doesn’t suggest there’s a bubble; there might be a price increase of some substance, but you’d expect the market to react and produce some more housing.”
This is so tiresome. It’s a bubble built on investor credit and choked supply, something Joe Hockey should know given his five properties. Perhaps that’s why he’s busy talking up a bubble instead of doing something useful like macroprudential tools, as UBS suggests:
UBS global chief economist Larry Hatheway says unless the Australian dollar falls below US85¢ in the near future, the Reserve Bank might have little choice but to use tools besides changing rates to ward off bubble-like conditions in the property market.
Speaking as he was wrapping up a tour of Australia, Mr Hatheway observed that as Australia is beginning to wean itself off of its dependence in the mining goods sector, it must now rebalance its economy towards consumption and investment in other areas of exports.
“That’s going to require, in my view, a weaker exchange rate. Getting from here to there though will be difficult. The Reserve Bank could facilitate that but cutting interest rates might exacerbate some of the bubbly-like conditions in the Australian housing market.”
