According to the Reserve Bank the best way to arrest the rapid house price rises is to attack the supply side and increase home building activity.
Last year house prices rose by 10 per cent across the country and by a whopping 15 per cent in Sydney driven largely by investors in existing homes.
RBA assistant governor for financial systems Malcolm Edey made these comments when he addressed a parliamentary committee inquiry into affordable housing last week.
“We can’t improve housing affordability simply by adding to demand,” he said.
“Targeted assistance can certainly help particular groups such as first-home buyers, but without a supply side response, any generalised increase in demand will just be capitalised into prices.”
Mr Edey went on to say that investor loan approvals had jumped by around 90 per cent over the last two years.
He also stated that housing affordability had fluctuated between around 20 and 30 percent of disposable incomes in the last 30 years, and has been rising recently and now sits at the upper end of its recent range.
Last week RBA governor Glenn Stevens floated the idea of changing regulations to curb risky lending to property investors due to concerns that soaring house prices and rapidly growing investor activity could pose a risk to banking stability and to the economy, comments that were backed up by Mr Edey.
“I want to emphasise that the banks in Australia are resilient, and the mortgage lending in this country has historically been relatively safe,” he said.
“Australian Prudential Regulation Authority (APRA) has, however, noted a trend to riskier lending practices, and over the past couple of years has been seeking to temper these through its supervisory activities.