ABC’s The Business last night aired its final segment in its three part series on housing, which this time looked at the dilemma facing the RBA as it tries to juggle a deteriorating economy in need of stimulus with a red hot Sydney (and to a lesser extent Melbourne) housing market.
The segment featured, amongst others, CLSA banking analyst Brian Johnson, the OECD’s Adrian Blundell-Wignall, and Emeritus Professor Mike Berry from RMIT’s Centre for Urban Research.
Blundell-Wignall was particularly blunt when he described the RBA as having “conflicts in their policy objectives” referring to its need to balance financial stability and housing risks against the broader economy.
He argued that the shift towards macro-prudential policies was necessary in the short-run but not a panacea and certainly no substitute for good policy making.
Professor Mike Berry warned about the potential for a boom-bust cycle:
“Prices can come down just as quickly as they go up and, if that happens, of course there are feedback effects into the broad economy as households start to pull back on their spending and try to pay down debt”…
“Banks call in loans, get much more selective about who they lend to and for what purposes. So you can have a downward spiral.”
Whereas NAB’s chief markets economist, Ivan Colhoun, called on the Government to take the heat out of the property market via fiscal policy.
Obviously, the Abbott Government had a chance to assist the RBA via negative gearing reform, but has now ruled it out. This has left the ball well and truly in the RBA/APRA’s court.
What bugs me most is that RBA Governor has not taken a firmer public stance against Australia’s policy makers, and warned that monetary policy cannot work as intended without policy support, most notably around tax.
I guess when you are being paid $1 million-plus a year, it pays to remain silent.