The federal government is continuing to send mixed messages on housing affordability, the OECD says in a stark warning interest rate cuts should be halted to avoid the risk of a “sharp correction” in property prices.
The Organisation of Economic Cooperation and Development said the Reserve Bank should hold off on further cuts or else risk a drastic fall in property value.
“The continuing property market momentum adds to the risk of a sharp correction,” it wrote in a report on Australia, issued in Paris on Wednesday.
The treasurer, Joe Hockey, , during an interview with the ABC on Thursday, said he worries about how his children will afford to buy their own place.
“If you have a home – if you’re already there, even with a mortgage – you wonder how your children are going to get a home,” he said.
The comments are in contrast with those of the prime minister, Tony Abbott, who earlier in the week told reporters he welcomed rising house prices.
“As someone who, along with a bank, owns a house in Sydney I do hope that our housing prices are increasing,” he said. “I do want housing to be affordable, but nevertheless I also want house prices to be modestly increasing.”
Infrastructure minister Jamie Briggs, who was launching the Property Council’s report card on housing development, echoed those sentiments.
“As a country we need to remember that these are good problems. These are very good problems. Rising house prices is a good problem. Growth in our cities is a good problem,” he said.
The treasury secretary, John Fraser, earlier this week warned parts of Sydney and Melbourne are experiencing a housing bubble, while the head of the financial systems inquiry, David Murray, said a sharp fall in property prices could be bad news for the country’s economy.
But the federal government is refusing to classify the housing situation in some regions as a bubble.
“Bubbles have burst in real estate when there is too much supply and not enough demand,” Hockey said. “I’d say we are a very long way from that in Australia.”
“The best way to respond to elevated house prices is to increase supply. What we’ve seen is a massive increase in the amount of housing construction in Australia in the last year, up 18%, which is 30,000 more dwellings that commenced construction last year than the year before.”
The Property Council report recommends reducing red tape and freeing up land for the construction of new dwellings in order to increase supply. Part of that is the rethinking of “growth-distorting taxes” such as stamp duty and other state levies, it said.
It wants new housing zones to be linked with infrastructure projects such as road and rail in order to maximise productivity.
“Poor planning and antiquated development assessment processes significantly drive up the price of housing and commercial projects,” the head of the Property Council, Ken Morrison said. “The only really effective way to make housing more affordable is to build more homes, build them faster and at lower cost.”
The report also recommends the Commonwealth offer state and territory governments payments for achieving housing development targets.
Briggs said that happens already on an ad-hoc basis, and the federal government is involving itself more in infrastructure because of its “importance to the national economy”.
The Northern Territory continues to outperform other jurisdictions in property development, scoring a 7.7 out of 10 in the report card. Tasmania is the worst-performing state, with New South Wales not far ahead of it.
“New South Wales is the only state to flat-line in its performance score, due largely to the abandonment of wholesale reform promised by the long-awaited overhaul of the planning system,” the report said. “All other jurisdictions advanced to some degree, and only Tasmania sits below NSW on the pecking order.”
The full ranking and scores are:
- Northern Territory – 7.7/10
- Western Australia – 7.5/10
- Victoria – 6.9/10
- South Australia – 6.9/10
- Queensland – 6.8/10
- Australian Capital Territory – 6.8/10
- New South Wales – 5.9/10
- Tasmania – 5.6/10
