RBA notes build-up of risks in housing market

The latest RBA minutes have noted recent data continued to suggest that there had been a build-up of risks associated with the housing market.

"In some markets, conditions had been strong and prices were rising briskly, although in other markets prices were declining.

"In the eastern capital cities, a considerable additional supply of apartments was scheduled to come on stream over the next few years.

"Growth in rents had been the slowest for two decades. Borrowing for housing by investors had picked up over recent months and growth in household debt had been faster than that in household income.

"Supervisory measures had contributed to some strengthening of lending standards."

The bank had recently announced its concerns for the apartment market, warning a flood of new apartments could come onto the market in certain areas could push down prices causing heavy losses for developers.

Last week bank research noted the rate of housing market turnover, or transactions, is on an “unusual decline” with a sharp rise in off-the-plan sales of apartments — which are difficult to measure in a timely manner — likely to be a factor.

According to the central bank, other potential reasons could be lower rates of home ownership, particularly for younger households, and migration trends.

A fall in housing market transactions directly affects the economy as it hurts tax revenue - which made up about 40 per cent of total state tax revenue in 2014/15, besides impacting the creation of more jobs and related occupations such as real estate agents, lawyers and the finance industry, the RBA noted last week.

The RBA’s latest bulletin says the decline in the national housing turnover rate in recent years has come despite “the strength in a number of housing market indicators such as national housing price growth, which has historically been positively correlated with the turnover rate”. 

It says part of the recent weakness could from measurement issues arising from the increased share of apartments in new housing construction.