Reserve Bank governor Philip Lowe believes the prevailing low interest rate environment is not likely to stoke a dramatic rebound in Australian housing prices in the next year.
In response to questions from government MP Tim Wilson during a hearing of the House of Representatives economics committee on Wednesday, Dr Lowe indicated that the modest rate of population growth caused by the pandemic was likely to temper house price increases in the near term.
The governor noted that the Australian population was expected to grow by only 0.2 per cent this calendar year- the lowest increase since 1916.
“It does appear the trend is toward higher housing prices at the moment and that shouldn’t surprise us,” he told the parliamentary committee.
“Lower interest rates do mean higher asset prices, that’s part of the transmission mechanism.
“But I think the increase in housing prices, though, is likely to be restrained by slower population growth.”
Dr Lowe said that for as long as population growth remained modest he found it hard to see generalised (and) widespread increases in housing prices.
For this reason he saw no reason for the introduction of macro-prudential measures to ensure housing prices did not overheat.
The governor also contested a suggestion that the RBA was responsible for keeping a lid on activity in the property market.
“The job of the Reserve Bank or APRA is not to target a specific level of housing prices across the country,” he told the committee.
“There are a lot of things that influence housing prices - it’s not right for us to target a specific level.
“What we’ve got to do is make sure that when people are borrowing against housing they do not borrow too much and that lending standards are appropriate.”
Dr Lowe’s comments follow moves by the New Zealand Government to amend the remit of the Reserve Bank of New Zealand’s monetary policy committee to take into account the impact of monetary policy decisions on housing prices.
The RBNZ has attracted heat from some Kiwi economists for lowering official interest rates too aggressively earlier this year.
They are blaming a 0.75 per cent official rate cut in March for a record surge in median house prices.
RBNZ governor Adrian Orr last night defended his bank’s response to the pandemic-induced economic crisis in an online speech he gave to the Australian National University.
“The Reserve Bank’s dual mandate – of price stability and maximum sustainable employment – has ensured we remain cognisant of the impacts of our activities, and that our dual mandate is proving welfare enhancing,” he told the ANU online audience.
Orr said the RBNZ would work collaboratively with the New Zealand government to address the issue of housing prices but he indicated that movements in property values were not only shaped by interest rates.
“There are many other factors impacting on house prices outside of the Monetary Policy Committee’s influence,” he said.
“A historic undersupply of housing and restrictions on land supply are two widely acknowledged issues.”