OECD housing bubble warning unwarranted: First National CEO
A senior industry executive has brushed aside speculations about the risk of an Australian housing bubble, saying it is based on overseas analysis and doesn’t apply to the country's unique market.
Ray Ellis, chief executive of First National Real Estate said the Organisation for Economic Cooperation & Development’s recent assertion that Australian house prices may represent a threat to the economy is similar to much of the foreign commentary we’ve heard before.
"it fails to fully appreciate the nature of our economy, how Australians invest, and where they want to live," he said.
The OECD recently warned that a potential hard landing in the property market could morph into a recession fuelled by record high household debt and the control wielded by big banks.
Its latest report cautioned that “a fall in house prices and or demand could have significant macroeconomic implications. Specifically, the market may not ease gently but develop into a rout on prices and demand with significant macroeconomic implications”.
But Ellis was of a different view.
“Australia is the only country in the world where nearly 40 per cent of its population wants to live in two capital cities that together comprise less than 0.3 per cent of the country’s landmass,” he said.
“Historic low interest rates have combined with overall positive economic conditions, and a national preference for housing investment over shares, to drive up house prices in Sydney and Melbourne. However, this is not the case across regional Australia and in Perth where house prices are still falling.”
First National says that unless there is a sharp increase in interest rates or a sudden rise in unemployment, the chances of a housing prices crash is low.
“Both scenarios are unlikely,” he said.
The Reserve Bank of Australia’s (RBA) preference would in fact be for further cuts to official interest rates if that didn’t increase the risk of further inflating house prices. While rates will eventually have to rise, that’s clearly not the RBA’s choice while inflation remains below target and the country is not at full employment. And, with 1.1 per cent economic growth announced last week, a significant increase in unemployment is also unlikely, said the media release.
Ellis concluded that in reality, Australia has no oversupply of property, with data showing new construction approvals are trending downwards. Meanwhile, a tightening of lending standards by banks contrasts with the conditions that led to housing bubbles bursting in many countries following the Global Financial Crisis.