RBA warns of housing price bubble

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AJG

After just reading this thread, looks like there might be a game of tennis going on. I'm more inclined to agree with Stevens, than Rudd. There isn't a need for interest rates to hike up with current unemployment levels and future forecasts. Generating more supply rather than trying to limit the demand seems like a more logical strategy to me in the current economic environment. It could reduce inflationary pressure as there is more competition and consumers can substitute for cheaper housing. Might be bad for us property investors in the short - medium term though. Perhaps some fiscal policy changes maybe in order, or maybe we should be hammering some developments through? Where to get the trades though I wonder...where is our Mexico when we need it :D

http://www.theaustralian.news.com.au/story/0,,25847136-601,00.html
 
it's a load of boloney. Stevens needs to get real and accept that thehousing industry is a cash cow for govt and a field of bureacracy and minority interests. If the housing supply could easily be increased it would have already.

so forget the extra supply bit - it's jabber jawing. means only one thing....
 
Ausprop said:
it's a load of boloney. Stevens needs to get real and accept that thehousing industry is a cash cow for govt and a field of bureacracy and minority interests. If the housing supply could easily be increased it would have already.

so forget the extra supply bit - it's jabber jawing. means only one thing....
Click to expand...

I very politely disagree with you over a medium term time frame.
This is a KEY RISK in my opinion. I would be much happier if property prices were risising when if our interest rates where at 7%+ rather than at 40 year lows.

In this instance i think both Glen Stevens and Kevin Rudd:)eek:) are being very responsible in identifying a potential bubble based on low interest rates.

Unfortunately interest rate policy set by Glen Stevens is a scatter gun approach, its used with a view to the economy as a whole. Unfortunately this can have the negative effect of creating 'bubble' tendancies in specific sectors of the economy.
 
chilliaa said:
I very politely disagree with you over a medium term time frame.
Click to expand...

what do you disagree with? If increasing the housing supply is so easy why hasn't it been done before? it's not like we haven't had rampaging prices and affordability issues before - some say housing is unaffordable at present
 
Ausprop said:
what do you disagree with? If increasing the housing supply is so easy why hasn't it been done before? it's not like we haven't had rampaging prices and affordability issues before - some say housing is unaffordable at present
Click to expand...

The key risks highlighted by the RBA are
1) current low interest rates
2) current limited supply.

Both of these are very valid risks.
The current limited supply is a risk because an increase in future supply coupled with future interest rate rises would put significant downwards pressure on prices.

Just because supply is limited now doesnt always mean there will be an undersupply in the future.
Key risks to increasing supply in my opinion are
1) Governments offering an incentive to produce new housing, eg through first home buyers grant being targeted only at new housing in the future. Or offering some form of temporary investment allowance for investors building new housing.
2) Government enacting legislation totally overhaulling local government powers on planning and development. Hence enabling much more efficient production of housing, removal of development levies, reduction in minimum land size for subdivision.

Over the long term market impediments get eliminated. It can take a long time, but they do eventually get eliminated. Im not basing my future financial affairs on the assumption that the status quo remains.
 
chilliaa said:
Just because supply is limited now doesnt always mean there will be an undersupply in the future.
Key risks to increasing supply in my opinion are
1) Governments offering an incentive to produce new housing, eg through first home buyers grant being targeted only at new housing in the future. Or offering some form of temporary investment allowance for investors building new housing.
2) Government enacting legislation totally overhaulling local government powers on planning and development. Hence enabling much more efficient production of housing, removal of development levies, reduction in minimum land size for subdivision.

Over the long term market impediments get eliminated. It can take a long time, but they do eventually get eliminated. Im not basing my future financial affairs on the assumption that the status quo remains.
Click to expand...

They are sound fiscal policy suggestions in my opinion, but any policy changes are probably going to be limited by building resources available. I think that is what Ausprop was targeting, and what I hinted at initially. Sure they can manipulate consumer demand and reduce some bureaucracy measures to fast track develops, but there is still the underlying labour shortages (trades), and probably to a lesser extent now, building material limits. I know WA was having some brick shortages a few years back, I don't know how that is coming along now. So shifting demand to developing rather than buying existing will probably just slightly change the factors of a bubble (e.g hiking up trade and material prices more so than existing property prices), rather than address it. From what I know you'd ideally like a good labour base for any fiscal policy measures to be effective...which is no quick fix. Opinions??
 
it's quite fascinating that Stevens is getting involved with it - he should have had some input to the Henry review and perhaps suggested neg gearing be restricted to brand new housing only? not that I really see that as a solution

perhaps a govt funded development bank, a review of council processes, over ruling the NIMBYs, reducing OH&S requirements, weakening of union power... all but dreams
 
You could be right, i honestly dont know.
But thats why undersupply is a risk, not a certainty.
Who knows how things will play out.

But when reviewing my financial affairs i take into consideration the potential risk factors against potential future profit streams.

The more the asset class is priced for perfection (ie highly priced) the greater the influence of the risk factors.

People learnt this lesson in the stock market in 2007.

There will be a time in the future when this lesson is learnt in the residential property market.

Im not saying dump all your property holdings, i am just suggesting that people adequately take into consideration the risk factors. Just because the risk factors are not in play at the moment doesnt mean that wont come into effect in the future.
 
you and i both - i'm not for it at all.

i called the end of the FHB AND FHG, the end to private rebates for healthcare (now on cards), the end to baby bonus (next to get the chop) and inthe distant future - rent control.

tall poppy syndrome for an outgoing labor govt maybe...?
 
how's the dental reforms? looks like I have to chip in $450 extra medicare to pay for other peoples dental. I'd be lucky spend that much on myself in a year

good career tip for teenagers... dentistry could be a boom industry
 
Why is Stevens making all the noise????
Isn't Rudd aware of the problem? or has he just not thought of a stimulus package for housing supply yet?
 
WinstonWolfe said:
... or has he just not thought of a stimulus package for housing supply yet?
Click to expand...

Good heavens, Winston - don't encourage him!!! :eek:

Was reading somewhere (The Oz?) yesterday that his $$$ splash to date will take something like 15 years to pay off. As you said in another post, 'Poor Taxpayers'. :(

Cheers
LynnH
 
Blue Card! said:
ah well - i'm glad i'm paying minimal income tax then - some other sucker can wear it.
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Hey Blue Card,

Even I am paying very little to no tax currently :p

However that could change if the rules change for -ve gearing etc which is very possible if the government want to raise massive money...
 
eternit said:
Hey Blue Card,

Even I am paying very little to no tax currently :p

However that could change if the rules change for -ve gearing etc which is very possible if the government want to raise massive money...
Click to expand...

Eternit,
In what way do you think the governmant is going to change negative gearing? If they abolish it again as they did in 1985, they will have to contend with soaring rents as they did back then. Although they may have to come up with another way to help offset the effects to investors rather than simply upping the depreciation rates as they did. It didn't work then, I'm not convinced it will be successful if they tried it again.

Boods
 
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