Senior members of both the Treasury department and the Reserve Bank of Australia have expressed concerns about the overheating of housing markets in the nation’s major cities.
The head of the Treasury department has said that Sydney “unequivocally” suffers from a housing bubble, and expressed concern at the Reserve Bank’s decision to keep interest rates at record laws.
“When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney,” said Treasury secretary John Fraser. “Unequivocally.”
Fraser made his remarks on the state of Sydney’s property market at a Senate hearing held just following the release of new housing data that shows sharp year-on-year growth in major cities throughout Australia.
The CoreLogic RP Data home value index for capital cities was up nine per cent year-on-year in May, despite edging lower 0.9 per cent month-on-month due the impact of seasonal factors towards the end of autumn.
Sydney and Melbourne topped price increases, with year-on-year gains of 15 per cent and nine per cent respectively.
Fraser noted that the data was consistent with the type of anecdotal evidence that is increasingly making the rounds in the popular press.
“Frankly, whatever the data says, just casual observation can tell you it’s the case,” he said.
While Fraser is confident that Sydney is in the throes of a property bubble, he’s less sure about other parts of the country.
“For the rest of Australia, the evidence for a bubble is less compelling,” he said.
The property market of certain high-end suburbs of Melbourne however, may also suffer from overheating.
“Certainly I think that’s the case in the higher priced areas of Melbourne, and I base that on my own observation as well as the data,” Fraser noted.
At the same Senate hearing Reserve Bank assistant governor Malcolm Edey said the housing market was “overheated,” and that excessive investment in the sector could create economic risk.
The remark is a sharp turnaround compared to Edey’s previous warning to refrain from “rushing to reach for the bubble terminology every time the rate in house price increases is higher than average.”
Despite his concerns about the existence of a housing bubble in Sydney, Fraser nonetheless said he wanted housing price to continue to rise, albeit at a more moderate pace.
“As someone who, along with the bank, owns the house in Sydney, I do hope that our housing prices are increasing,” he said. “I want housing to be affordable but nevertheless, I also want house prices to be modestly increasing.”