RBA tells banks dwelling price boom was "its greatest fear": Robert Gottliebsen

A potential property boom could force the Reserve Bank of Australia to raise interest rates, according to veteran financial journalist Robert Gottliebsen.

He says the RBA has told the big banks that a housing price boom is currently its "greatest fear" as prices are already high by most world standards.

This echoes an earlier report by Terry McCrann who says the RBA is worried about a property bubble.

“(Banks) are currently fanning demand by encouraging people to buy dwellings, both privately and as investors, with generous credit and low rates,” Gottliebson wrote in Business Spectator on Wednesday.

“But on the supply side the banks reduce the supply of dwellings because they are reluctant to take risks in lending to developers because history has shown that almost all big bank losses have come via property development loans during booms.”

He says this is pushing up apartment prices and limiting supply as developers seek other financiers who want higher returns.

This is then exacerbated by the actions of could and government planners as well as “cartel like arrangements between large commercial builders and the big building unions”.

Any potential property boom is likely to start in the tightly-supplied inner city apartment market in Melbourne and Sydney, driven by investors, but would spread to suburban areas as prices increase and yields decrease.

“If that inner suburban boom gets out of hand be ready to change the interest rate forecasts,” Gottliebsen writes.

"The big banks have been quietly told by the RBA that a dwelling price boom is its greatest fear in the current climate because Australian dwelling prices are already high by most world standards. If a new housing price boom breaks out, then the interest rates will have to rise."