When Reserve Bank Governor says property prices have gone ‘crazy’, you know it’s bad

WHEN this guy says property prices have gone ‘crazy’, you know things are bad. So if you’re worried about housing, you should be.

House prices are officially ‘crazy’

WHEN Glenn Stevens says property prices have gone “crazy”, you know it’s bad.

The Reserve Bank Governor, usually a master of understatement, waded into the housing affordability debate yesterday telling a business lunch was worried about soaring prices.

“What is happening in housing in Sydney I find acutely concerning for a host of reasons, many of which are not to do with monetary policy,” he told the Economic Society of Australia. “I think it’s a social problem.

“I think some of what’s happening is crazy, but we have a national focus and so that just increases the complexity.”

And if we needed any proof of the madness gripping the market, a tiny single-level house on Sydney’s north shore may be it.

The 75-year-old home on a 226-square-metre sliver of land sandwiched between two high-rises in St Leonards is expected to fetch upwards of $3.5 million at auction later this month.

“Most likely it’ll be a mixed use development so ground floor retail and residential units above,” real estate agent Tim Grosmann said of the property.

“Nintey-nine per cent of enquirers (have been) looking to redevelop in that form.”

Mr Stevens’ comments came as HSBC research found Australian home prices have risen 24 per cent in the past three years, though the gains have mostly been confined to Sydney and Melbourne.

Sydney prices had jumped 39 per cent, while Melbourne prices were up 22 per cent.

Housing affordability has been a hot-button issue in recent days after Prime Minister Tony Abbott told Parliament he hoped property prices would go up, while Treasurer Joe Hockey shrugged off the problem on Tuesday, telling struggling first-home buyers to simply get a better paid job.

Mr Hockey’s comments set off a social media firestorm, fed by revelations about our cigar-chomping Treasurer’s extensive personal property portfolio and taxpayer-subsidised living arrangements.

Reserve Bank Govenor Glenn Stevens, right, during a Q&A session at the Economic Society of Australia.

New ABS figures show the proportion of lenders who are first-home buyers had halved to just 15 per cent since 2009, while investors had soared to 41 per cent.

Mr Stevens said record low interest rates weren’t entirely to blame.

Treasury boss John Fraser last week said Sydney and wealthier parts of Melbourne were “unequivocally” in a housing bubble. ANZ chief executive Mike Smith doesn’t believe Sydney is in “bubble” territory yet, but says the market needs to be watched closely.

However, he says house prices are all relative.

“I was speaking to an investor the other day who was saying: “Oh, house prices are getting higher in Sydney, but compared to Hong Kong and compared to New York, Sydney’s quite good value’,” Mr Smith told a business lunch in Sydney on Wednesday.

While Treasurer Joe Hockey has downplayed fears of a bubble, he has sparked a wave of controversy by telling frustrated first-time buyers that all they need is “a good job that pays good money” if they want to buy a home in Sydney.

In the meantime, the RBA remains open to cutting interest rates even further to help give the economy a boost.

“We remain open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth,” Mr Stevens said.

“I think it’s quite some time before we even think about interest rates going up.” However he warned that there were limits to the effectiveness of any future moves in the cash rate and renewed his calls for governments to start spending on major infrastructure projects to help the economy.

Mr Stevens said the outlook for June quarter economic growth was likely to be worse than the RBA had predicted two years ago, pointing to weak business investment, and government investment falling eight per cent in the past year.

Originally published as When Reserve Bank Governor says property prices have gone ‘crazy’, you know it’s bad