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Borrowers shouldn’t expect Australia’s low interest rates to produce affordable housing, according to the Reserve Bank.
Governor Glenn Stevens said in a speech yesterday that monetary policy has its limits.
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“Monetary policy can create conditions of easier funding and help the ability of the financial sector to extend credit,” he told the Committee for Economic Development of Australia.
“But it can't, for example, add to the supply of land zoned for housing, or improve the responsiveness of the construction sector to demand for additional housing stock.
“Other policies have to do that – and it's important that they do if we are to see easy credit result in more dwellings as opposed to just higher prices for the existing dwellings.”
Mr Stevens said funding conditions aren’t an impediment to creating the additional infrastructure that most people agree is needed.
The real issues are governance, risk sharing and pricing, which demand other policy responses, he said.
Mr Stevens also said that although lower interest rates would inevitably lead to more risk taking, the Reserve Bank had to make sure not to stimulate an excessive build-up of risk.
“That could leave the economy exposed to nasty shocks in the future. The more prudent approach is to try to avoid, so far as we can, that particular boom-bust cycle,” he said.
“It is stating the obvious that, at present, while we may desire to see a faster reduction in the rate of unemployment, further inflating an already elevated level of housing prices seems an unwise route to try to achieve that.”
[Related: Pointing the finger over high housing prices]
