House prices to rise further but they're worth it, says RBA
Thursday, November 26, 2009
WORRIED that $607,000 is too much to pay for a Sydney house? The Reserve Bank isn't and it expects prices to climb even higher.
In a speech that amounted to a defence of Australia's historically high house prices the Reserve Bank deputy governor, Ric Battellino, told a housing conference yesterday to expect worse and to recognise home buyers were getting value for money.
Prices would climb further because the global economy was growing again and because Australia had entered ''a new upswing'' that would extend its record 18 years of continuous economic expansion.
He said house prices would be boosted by increased population growth and immigration, solid increases in household incomes and ''substantial competition'' for construction industry workers from the mining sector.
Australians had been spending more of their income on housing than ever but had been getting bigger and better houses as a result. Almost half of the $250 billion shelled out on housing each year was spent on alterations and additions, Mr Battellino said.
Around one in every seven new houses built was ''simply replacing existing houses that have been demolished,'' up from one in every 10 new houses a decade ago.
And we're buying holiday houses like never before.
''Census data shows at 2006 there were 8 per cent more dwellings in Australia than there were households,'' Mr Battellino said. ''Presumably, most of this surplus reflects holiday houses and second houses.
''In short, a high proportion of dwelling investment is going into improving the quality of existing dwellings and building accommodation additional to primary residences.
''If as a nation we want to continue to do this, while at the same time providing enough dwellings for the growing population, the overall amount of dwelling investment undertaken will need to increase relative to GDP.''
While there was ''a common perception that house prices relative to household income in Australia are high'', the country's population was ''more concentrated in a few large cities'' than other populations and Australians had more free income with which to pay for housing.
''Australians seem to spend less of their income on non-housing consumption than is the case for US households, with a significant part of this difference explained by lower health costs in Australia,'' Mr Battellino said. ''Australian households as a whole appear to have the financial capacity to sustain a relatively high ratio of housing prices to income.
''It is certainly the case that the ratio is higher now than it was 20 years ago. However, this is largely explained by the fact that lower interest rates have allowed households to take out bigger home loans without increasing housing loan repayments. In turn this has given households more buying capacity in the housing market, which has been reflected in house prices.''
Mr Battellino conceded that not all Australians were getting better housing for their money, noting that first-home owners - typically those under 35 years of age - have experienced a ''noticeable decline'' in home ownership.
''It may be that this is being driven by demographic factors - such as the fact that young people are staying in education longer and delaying the formation of new households but it may also be financially driven,'' he said.
ON THE UP
- The typical price of a Sydney house is $607,000 after climbing $39,000 in the past year.
- The typical price of a Sydney unit is $457,000 after climbing $35,000.
SOURCE: RP Data Research
- Peter Martin - SMH