Fascination with housing' won't make us rich, says RBA's Phil Lowe

The Reserve Bank has once again warned that growing consumer spending encouraged by the housing boom might not be in the national interest.

Deputy governor Philip Lowe said that rising household debt encouraged by higher home and land values meant households were more vulnerable to external shocks.

“Given the position of household balance sheets, it is unlikely to be in our long-term interest for a consumption boom to be financed by a pick-up in household borrowing,” Dr Lowe said in a speech in Perth last night.
“Ever-rising housing prices, relative to our incomes, do increase risks in the economy and are unlikely to make us better off as a nation.

“Rising housing prices are best matched by rising incomes.

“This is something we continue to be cognisant of in the setting of monetary policy.”

House prices in Australian are damaging the economy.

Dr Lowe’s warning is a sign that the Reserve Bank is reluctant to cut the cash rate below the current historic low of 2 per cent because of concerns about a potential housing price bubble in Sydney and Melbourne.

In recent public statements, the RBA has said it is working with other regulators such as the Australian Prudential Regulation Authority (APRA) to stem investment in residential housing.

APRA has leant on major banks to put more capital aside to back mortgages and banks have reacted by raising interest rates on investor and interest only loans.

In his address on national wealth and land values, Dr Lowe said that while higher values had made property owners better off the dream of buying a home was more difficult for young Australians.

“If they care about the future housing costs of their children then … it’s possible that the higher expected future housing costs could exceed the capital gain, even though they own their own property,” Dr Lowe said.

“The same is obviously true for renters. They don’t have any capital gain at all.”

Dr Lowe said, while home prices were rising, household incomes were not keeping up and low rates were providing less of a boost to consumer spending than a decade ago.


http://www.afr.com/news/economy/mon...e-us-rich-says-rbas-phil-lowe-20150812-gixfdm

 

wait ...what?

 

I do worry about the future housing costs of my children. We have a strategy of passing on a property to each child unencumbered when they reach adult age. Give them the best chance to start their adulthood without completely behind the 8 ball.

 

The best thing you can do for your children is teach them what you know.

No one can stop or dictate when or what people should do with their money, ie stop buying houses, next it will be stop buying shares, stop buying foreign cars ... ruining the economy etc. Seriously this article is a nonsense.

MTR

 

Hmmm

consumer spending increase from house purchases because of low rates, enough to cause issue with economy
then
low rates providing less boost on consumer spending??

So all property owners are not young Australians

 

Would you believe some people invest in property so they don't need to rely on the pension and perhaps they even think it may provide them with a better lifestyle and perhaps even retire early and give back to the community.... what next, off with their heads

 

Absolutely agree. Start with first principles - My 7 year old loves playing monopoly. Kicks out butts every time. He's also got the concept of delayed gratification all sorted (he'll save up rewards to get more rewards later).

 

Yes, surprisingly . I think people would give back more if they're not too busy keeping above the water.
My home country doesn't really provide pension, so I don't expect one when I came to Australia. Gotta work it out yourself rather than relying on government.

And why home buyer, property investors and young Australians are all in different groups? I am young(ish.. feel so old though), a noob investor and a home buyer.

 

The interest rates hit almost zero in the USA after the GFC, and even went to zero in Japan for some years (might still be the case?), and still noone bought houses.

So, if the RBA are worried about lowered rates causing more boom; it not necessarily the case.

All it needs is for the Banks to tighten up lending criteria across the board and people will not be able to buy a more expensive house.

 

Just have to ask the question,how many people in this site have been in a "RECESSION" and worked through those hard times ,I still remember the early 1990's under Labor,very high unemployment,very high interest rates and that's if you were able to get a loan in the first place,or have a job??..
Plus the way the big 4 banks are starting to shore everything up is starting to cause me a bit of worry
as they stress test years in advance,ASX you get wiped out in a day or week property is like turning a massive big ship around takes time but when it does turn and goes full steam the other way there is no stops in place..

 

I guess that you are lucky enough not to live in countries where the goverment tells you what to do. These are only recommendations which you you don't have to obey, even though some of them are reasonable, but the timing is wrong. All these thoughts should have been worked out a long time ago and measures taken.

 

I have seen a few. Falls in real estate market more than 50%, but that was overseas. It was ugly.

 

I wouldn't say Dr Lowe's views are stupid because that would be impolite.

He said " "Most of the extra money that has gone into residential property has not gone into the physical stock of housing, but rather into land," Dr Lowe said. "So our fascination with housing is really, mostly, a fascination with land."

Ahh not quite only a fascination with land. If that was the case people would be buying large blocks of land in woop woop which is not the case. People are settling for smaller block sizes to live in desirable locations in attractive dwellings.

I completely agree with @MTR about the best thing we can do for our kids is to teach them how to be financially savvy. Government wont do it, they are too busy manipulating the system and investing in property themselves. Schools wont do it because they have no clue, they still think that highest marks equates to a successful future, teachers cant do it because most have no clue themselves.

We are the best people to secure our kids financial futures, by teaching them our knowledge, skills and mindsets. Its really common sense.

 

@mrdobalina love it, love it, love it!!

 

I would love to get pointers on this,
I have a four year old

 

He kinda figured it out himself with his sticker rewards chart. One of the reward milestones is 15 minutes of play time on the ipad. Sometimes he saves it up for the next reward, and bundles them together to get 30 minutes of ipad time.

Reminds me of the marshmallow test:

 

In 1990 I started my 2nd Proshop business, and was there until mid-1999.

We had some quieter years over that decade, but mostly ok trading.

I got married in 1994, and we built a house later that year on a block of land I had bought the year previously. I paid cash for the block of land ( a smaller townhouse type block), so this mean a much smaller loan for the construction that I would otherwise have had.

I can't remember the interest rates at all, but I know we had no probs getting the loan for the house construction.