Unemployment Line
Souce:
  • RBA tackles unemployment despite soaring housing market
  • AMP Capital Chief Economist suggests cutting immigration to help housing affordability

As reported on The Property Tribune last week, the Reserve Bank of Australia looks to remain dovish on monetary policy.

Their primary concern is employment, ignoring the concerns of inflation hawks who regard higher inflation as a greater threat to the economy.

What does this mean?

Well, put simply, the concerns for the broader economy are unlikely to justify interest rate hikes until 2023-24 to tackle the soaring housing market (or curb inflation).

These sentiments affirm the recent comments of AMP Capital chief economist, Shane Oliver.

Shane Oliver
Shane Oliver, Chief Economist of AMP Capital. Source: From LinkedIn.

“Don’t expect the RBA to hike rates just because the housing market is hot.”

Mr Oliver has forecast Australian home prices to rise another 5% to 10% this year, driven by ultra-low interest rates, government home buyer incentives, and recovery in the jobs market.

These predictions in strong growth also mirror forecasts made by major banks, including the Commonwealth Bank of Australia (predicting a 16% rise in housing growth over the next two years) and NAB (their latest Residential Property Index predicts around 8% growth in 2021 and a further solid rise of 6% in 2022).

Although the major focus of the debate has been over monetary policy and the recent proposal by the Federal Government to ease lending standards, Mr Oliver focused his attention on ways to improve housing affordability.

“The best ways to make Australian housing more affordable are to limit the return of immigration to enable housing oversupply to build up and to reinforce the pandemic in encouraging people to relocate from expensive inner-city areas to more affordable suburbs, cities and regional centres.”

Shane Oliver, Chief Economist of AMP Capital

Mr Oliver suggests this immigration limit, accompanied by weak rental markets, will likely affect inner-city areas and units in Melbourne and Sydney most.

Mr Oliver also weighed in on the major debate regarding monetary policy, agreeing with Philip Lowe’s comments that the central bank does not target house prices.

“The RBA does not target house prices (and nor should it) and will use macro-prudential controls to control lending if it looks like lending standards are getting too lax.

“In our view, this is likely from later this year and could include a return to speed limits on investor loan growth and limits around loan to value ratios, debt to income ratios and interest servicing to income.”



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