RBA governor Philip Lowe warns that high property prices risk entrenching divide of rich and poor
AUSTRALIA’S top banker has warned that a concerning national trend is likely to ensure the next generation will be divided into the haves and have nots, as the rich get richer and poor get poorer.
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AUSTRALIA’S top banker has warned that high property prices risk helping entrench children into divides of rich and poor.
“One of the things that concerns me is that the high housing prices really pause the existing distribution of wealth within society,” Reserve Bank of Australia Governor Philip Lowe told a Brisbane luncheon on Thursday.
“Because if you come from a wealthy family ... you’ve got the bank of mum and dad that you may or may not be able to rely on. So that’s fine for those children, for kids who come from those families.
“But if you don’t come from such a family, it’s much, much harder to get into the housing market than it once was. And I think that’s a social problem.
“(It’s) nothing the Reserve Bank can do anything about. But I think it’s quite a significant issue — it affects the mobility within society and reinforces the existing distribution of wealth, which can’t be a good thing.”
Dr Lowe was speaking at an Economic Society of Australia function, with his speech focusing on housing affordability and household debt.
Spiralling household prices have been a concern — particularly in Sydney and Melbourne. But according to latest Corelogic figures, 16 suburbs in Brisbane alone have median prices above $1 million, from Ascot to Burbank.
Dr Lowe shot down notions, recently raised in political circles, of letting young people tap their superannuation to get into the housing market.
“You don’t address housing affordability by adding to demand,” he said. “You address it by adding to supply — it’s the supply of dwellings and the supply of well-located land. That’s where the focus needs to be.
“Policies that increased demand would be just capitalised into the price.”
Dr Lowe’s speech touched on rising levels of debt and housing prices, and any risk to Australia’s economy. One concern was any economic downturn could become amplified because people would essentially cut spending harshly because of already high-levels of indebtedness.
“Given the high levels of debt and housing prices, relative to incomes, it is likely that some households respond to a future shock to income or housing prices by deciding that they have borrowed too much,” he said.
“This could prompt a sharp contraction in their spending, as they try to get their balance sheets back into better shape. An otherwise manageable downturn could be turned into something more serious.”
He maintained, however, that regulatory stress tests “confirm that the banks are resilient to large movements in the price of residential property”.
Dr Lowe also said moves by regulators to tighten lending — limits have been imposed on investor loans, for instance, were “not targeted at high housing prices”.
Experience from overseas showed such measures would not sustainably address pressures on housing prices when under-supply was the culprit, he said.
“But (these measures) can provide some breathing space while the underlying issues are addressed. In doing so, they can help lessen the financial amplification of the cycle,” he said.
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