Australian policy making continues to resemble a parody, the latest example of which is former RBA governor Glenn Stevens’ appointment to a NSW working group on housing affordability. From the Daily Telegraph:
Former Reserve Bank governor Glenn Stevens will advise a state government working group on how best to tackle housing affordability…
Today, Ms Berejiklian said work had begun on a “comprehensive strategy” and announced Mr Stevens, who recently retired from the RBA, had accepted an invitation to provide advice.
The Premier dodged an Opposition question, however, about whether she would consider advocating for changes to negative gearing if that were recommended by Mr Stevens.
Let’s recall Glenn Stevens recent record. Post-GFC he jacked interest rates into the mining boom and helped deleverage the economy, warning of excessive leverage in households. But he over-egged the mining boom and when it suddenly began to crash in 2012, the same Glenn Stevens juiced housing to the gills to cover his own misreading of the mining boom’s durability, in turn playing a direct hand in the housing affordability challenge Sydneysiders confront today. Even as that bubble grew to histrionic proportions, and specufesters took over the market, Stevens steadfastly refused to countenance macroprudential tightening to bring the madness to an end.
The RBA’s speeches and commentary around housing often felt like they had come directly out of a bank’s economics/marketing department, aimed squarely at appeasing foreign bond investors and boosting confidence, rather than telling it as it is.
For years we heard from the Stevens RBA that: Australian housing is not particularly overvalued; the banks’ lending standards are sound, financial regulation is the best in the world, and macro-prudential policies are not required (despite the shift globally to such rules and the RBA’s own research showing they work); the banks’ massive external liabilities do not pose a problem and might even be desirable; and the potential headwinds facing the economy are mild.
Sure, the RBA and APRA recently backtracked somewhat on macro-prudential, implementing a timid 10% ‘speed limit’ on investor mortgage growth in 2015. But this came long after the horse had already bolted and was way too generous given the weak growth in nominal GDP.
Don’t get me wrong. I don’t hold the RBA fully responsible for what has transpired in Australian housing markets. The fact is, politicians at all levels have abandoned clear-thinking economics to manage the market failure around housing, from state/local government urban containment, to federal government maintaining demand-pumping tax lurks (e.g. negative gearing and the CGT discount) and at at various times first home vendor grants.
Nevertheless, by refusing to speak-out, Stevens’ RBA effectively gave Australia’s politicians a free pass on housing.
One of the few times that Captain Glenn did speak openly was in June 2010 when he issued the following warning about Australia’s then record high household debt:
Reserve Bank governor Glenn Stevens is urging Australians to reduce household debt and increase savings, while the economy remains strong and the risk of financial hardships are low.
In a speech given in Sydney, Mr Stevens said the European sovereign debt crisis carried a lesson for Australians that “potential vulnerabilities need to be addressed in good times, even when markets are not signalling unease”.
“One would have to think that, however well households have coped with the events of recent years, further big increases in indebtedness could increase their vulnerability to shocks – such as a fall in income – to a greater extent than would be prudent.”
Nearly seven years later we have or have recently had the following:
- Record high housing valuations;
- Record high household debt;
- Record high investor participation;
- Deteriorating lending standards; and
- A budding apartment and oversupply.
History should (but probably won’t) assess Glenn Stevens’ tenure as a failure. He let the dumbest bubble in history inflate to another all-time high just as national income slumped and the economy faces its biggest structural adjustment since the early-1990s recession.
And now he has been appointed to advise the NSW Government on Sydney housing affordability.
