While there are plenty of economic experts who think interest rates will be cut again this year after the RBA left them steady this month, the Organisation for Economic Cooperation and Development says Australia should stop cutting rates now.
The OECD says rates shouldn’t be cut again to avoid any further stimulation to property prices that are at risk of a sharp correction.
“The net gains from further monetary expansion in the near term are finely balanced,” the OECD said in Paris on Wednesday.
“The momentum in the housing market and possible need for expansionary firepower given uncertainties in the macro-economic outlook suggest caution.”
The idea of a housing bubble in Australia has been in the national conversation for some time now, as ongoing record low interest rates continue to see healthy house price growth in Melbourne and Sydney amid an otherwise sluggish economy.
Treasury Secretary John Fraser said on Monday that the housing market in Sydney is ‘unequivocally’ in a bubble. Joining the debate was financial system inquiry chief David Murray who said this week that the high price rises in Sydney and parts of Melbourne were a threat to the economy if the property boom leads to a crash.
Speaking to the ABC, Treasurer Joe Hockey said he was concerned about house prices becoming out of reach for first-home buyers but was against market intervention from the Government.
“I like many others, if you have a home, even with a mortgage, you wonder how your children are going to get a home,” he said.
“The best way to respond to elevated house prices is to increase supply. What we’ve seen is a massive increase in housing construction in the last year, it’s up 18 per cent, 30,000 new dwellings…that is the best way to respond to elevated prices, that is happening.”
Mr Hockey said the Australian property market situation was very different to the bubble that occurred in American and Ireland recently.
“It’s not inflated demand, we’ve got very low vacancy rates in places like Sydney. We have put in a much stricter regime in real estate for foreign investment,” he said.
“If you look at what happens around the world, bubbles burst in real estate where there is too much supply. We are a very long way from that in Australia.”