Fretting over a housing bubble

The superficial signs of a pick up in availability of loans for housing and the implications of that trend was one theme raised by Glenn Stevens, governor of the Reserve Bank of Australia, in a speech to a charitable function in Sydney yesterday.

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

While Stevens did not deal with the data, the notion of "ready availability" of housing credit has tended to be exaggerated, with monthly approvals data from the Australian Bureau of Statistics (which is up) not always contrasted to data on growth in the stock of housing credit (where the monthly rate of growth in housing credit has more or less stabilised around 0.5 per cent and the 12-month rate of growth is down to seven per cent).

But with the first home owners' grant and a recent revival in refinancing driving a recent rise in demand, Stevens addressed whether this flow of funds would work its way into bidding up the prices of established houses or into investment in new ones.

"This ought to be the time when we can add to the dwelling stock without a major run-up in prices," Stevens said. "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."