Why helping Australia’s poorest people could lock young people out of the housing market for good 


Why helping Australia’s poorest people could lock young people out of the housing market for good

  • Reserve Bank deputy governor Guy Debelle noted link low rates to house prices
  • Central bank wants joblessness to fall well below 5 per cent before rates raised
  • Record low rates have coincided with house prices hitting record highs in April 

The Reserve Bank of Australia has acknowledged tackling unemployment will lock more young people out of the housing market.

Record-low interest rates are pushing real estate values to record highs in capital cities and regional areas with residential property now worth $8trillion.

The RBA has vowed to leave the cash rate on hold at 0.1 per cent until 2024 ‘at the earliest’ in a bid to see unemployment, now at 5.6 per cent, fall below 5 per cent for the first time since January 2009 and push wages growth to levels unseen in more than a decade.

The Reserve Bank of Australia has acknowledged tackling unemployment will lock more young people out of the housing market as record-low interest rates push up property prices. Pictured is a Centrelink queue on the Gold Coast last year

The Reserve Bank of Australia has acknowledged tackling unemployment will lock more young people out of the housing market as record-low interest rates push up property prices. Pictured is a Centrelink queue on the Gold Coast last year

Guy Debelle, the central bank’s deputy governor, acknowledged record-low interest rates were bad for the young trying to buy their first home but argued failing to tackle unemployment would have worse social consequences.

‘It is important to remember that while housing prices may not rise as fast without the monetary stimulus, unemployment would definitely be materially higher without the monetary stimulus,’ he said on Thursday night.

‘Unemployment clearly has large and persistent distributional consequences.’

The RBA on Friday updated its economic forecasts to have unemployment falling to 4.75 per cent by June 2022 and to 4.5 per cent by December 2022, a level last touched in November 2008.

Record-low interest rates are pushing real estates values to record highs in capital cities and regional areas. Pictured is an auctioneer at Paddington in Sydney in February 2021

Record-low interest rates are pushing real estates values to record highs in capital cities and regional areas. Pictured is an auctioneer at Paddington in Sydney in February 2021

Guy Debelle, the central bank's deputy governor, acknowledged record-low interest rates were bad for the young trying to buy their first home but argued failing to tackle unemployment would have worse social consequences

Guy Debelle, the central bank’s deputy governor, acknowledged record-low interest rates were bad for the young trying to buy their first home but argued failing to tackle unemployment would have worse social consequences

Australian wages grew by just 1.4 per cent last year and haven’t been above 3 per cent since March 2013. 

Wages growth hasn’t been above 4 per cent since March 2009 and was at 4.3 per cent in late 2008 when the unemployment rate had a four in front of it.

Even if the Reserve Bank left interest rates on hold, the Australian Prudential Regulation Authority can still act to cool an overheating market. 

In April, property prices hit record highs in 63 of Australia’s 88 real estate sub markets, CoreLogic data showed.

Sydney’s median house price surged by another 2.8 per cent to $1.147million and have risen by 10.4 per cent during the past year, despite five months of decline last year following the Covid lockdowns.

Westpac senior economist Matthew Hassan said a surge in investor activity would make APRA, the banking regulator, more likely to tighten lending rules. 

‘We expect the regulators will still be very comfortable with what they are seeing now but to be less so as investor activity heats up and overall housing market momentum remains strong,’ he said.

Real estate data group CoreLogic on Friday calculated the total value of residential real estate in Australia had reached $8.1trillion. Pictured are houses at Cecil Hills in Sydney's south-west

Real estate data group CoreLogic on Friday calculated the total value of residential real estate in Australia had reached $8.1trillion. Pictured are houses at Cecil Hills in Sydney’s south-west

‘Our forecasts envisage a strong year in 2021 but prudential tightening coming into frame in 2022.’

The banking regulator tightened rules on investor loans in 2017, causing Sydney house prices to dive by 15 per cent over two years.

In March, home loan commitments hit a record high with investor lending growing by 12.7 per cent, the fastest monthly growth pace in 18 years. 

Real estate data group CoreLogic on Friday calculated the total value of residential real estate in Australia had reached $8.1trillion.

CoreLogic’s head of research Eliza Owen said Australian homes were now worth four times the size of Australia’s annual economic output and more than the combined value of superannuation savings, commercial real estate and the Australian share market.

‘The Australian dwelling market has reached fresh record highs for the past four months, but the end of April marked the first time the total value of Australian housing broke the $8 trillion dollar mark,’ she said. 



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