The central bank’s governor has answered a number of questions on housing and inflation in an appearance before the Senate economics legislation committee.
Reserve Bank of Australia (RBA) governor Michele Bullock has said house prices could rise in the short term as an impact of an expanded First Home Guarantee.
Speaking before the Senate economics legislation committee on Friday (10 October), Bullock said the scheme, launched three months ahead of schedule, could lead to higher housing prices.
“In the short term, it’s possible that housing prices might be a bit higher than they otherwise were,” she said.
She added that whether or not this will be a short- or long-term impact depends largely on how supply responds to demand.
Bullock was also questioned on the macroprudential impact of the potential for there to be more borrowers with higher loan-to-value ratio (LVR) loans under the scheme, noting the RBA was watching this with the Australian Prudential Regulation Authority (APRA).
She agreed with the assertion that with income caps abolished, there will probably be more people with higher loan-to-value (LVR) loans and debt-to-income (DTI) ratios, but noted there was some nuance in this area regarding borrower appetite.
“It does mean, if people have a higher loan-to-value ratio or a higher debt-to-income ratio they’re going to be paying more in housing repayments,” she said.
“They’ve got to take that into account when they decide whether or not to take on these loans with a guarantee from the government.
“What we know, prior to this, a large chunk of people did not borrow up to the maximum amount they were permitted to borrow. And that would usually reflect they weren’t comfortable with allocating that much of their income into repayments every year.
“So, will everyone rush in and immediately go in and take 95 per cent loan to valuation ratios? I’m actually not sure they will. Some will. But I still think a large portion will think before they borrow up to the maximum portion allowed.”
A question of demand
Throughout the hearing, Bullock was firm in her view that Australia’s main housing challenges stem from a lack of supply relative to demand.
In a line of questions from Greens senator Nick McKim, Bullock noted supply-side issues had been the most significant contributor to housing accessibility issues.
“The problem is the lack of supply, relative to demand,” she said.
“Monetary policy eases and housing demand picks up. Supply can’t pick up as quickly. And that’s where you end up. It’s not monetary policy’s responsibility to look after housing prices.”
Bullock was also questioned whether there were any other levels the government could pull on any levers to improve the accessibility of housing to Australians.
“There might be some other things that governments can do and that’s up to them but really supply is the big thing here,” she said.
“It’s been a structural issue for many many years. It didn’t just start in the last year or so. It’s been an issue for a number of years.”
Inflation could go either way
Bullock also faced a line of questions from Liberal senator James Paterson regarding higher-than-expected inflation data from the Australian Bureau of Statistics (ABS).
While noting the volatility of monthly reads, Bullock said the central bank’s view is that the risk is “relatively balanced” on both sides.
“We think the risk is relatively balanced on both sides. It is possible that we’ve been expecting inflation for this last bit to be slower to decline than if it came down very sharply,” she said.
“And then it’s been much slower, gradual decline. We had expected that, but as I said earlier, we’re in a position where we think the labour market might be still a little bit tight or maybe close to balanced, depending on who you talk to.”
The ABS will release its next quarterly inflation reading at the end of October, a week ahead of the RBA’s upcoming Monetary Policy Decision Statement on 4 November.
[Related: Most Australian mortgagors remain resilient as pressures ease]
