Soaring home prices prompt calls for Canberra to step in

Aussie central bank says regulators keeping close watch as low interest rates fuel demand

Houses listed for sale or auction in Melbourne. A spike in prices has prompted more calls for the federal government to follow New Zealand's cooling measures which include mandating investors to hold a property for 10 years, instead of five, if they
Houses listed for sale or auction in Melbourne. A spike in prices has prompted more calls for the federal government to follow New Zealand's cooling measures which include mandating investors to hold a property for 10 years, instead of five, if they are to avoid paying taxes when they sell. PHOTO: AGENCE FRANCE-PRESSE

When the Covid-19 pandemic landed in Australia early last year, analysts expected the nation's booming property market to finally cool and predicted a national price dip of as much as 30 per cent.

But, once again, the market is defying the naysayers, as average prices increased last month at their fastest pace in more than 30 years.

Record low interest rates have fuelled the surge in prices, which rose by 2.8 per cent nationally last month - the highest level since 1988. Aside from inner-city apartments in some state capitals, which have been hit by the absence of international students, prices have climbed everywhere, from cities to regional areas.

Prices in Sydney and Melbourne were up 6.7 per cent and 4.9 per cent respectively in the last three months, according to property data firm CoreLogic. Unusually, regional areas (up 6.3 per cent) saw bigger spikes than capital cities (up 5.6 per cent) as the work-from-home phenomenon prompted a rush from city living to quieter, more affordable places.

The runaway market has prompted calls for the federal government to step in to assist first-time buyers and ensure that owners are not taking on risky loans.

Some analysts have suggested Australia should follow the lead of New Zealand, which recently intervened with controversial measures to cool its booming market.

In the past year, New Zealand experienced a 22 per cent increase in average prices.

In the capital Wellington, prices were up 29 per cent.

New Zealand Prime Minister Jacinda Ardern has introduced measures to avoid a "dangerous housing bubble", including stemming tax breaks for investors.

To avoid paying taxes when selling their property, investors will need to hold it for 10 years rather than five. Tax deductions for investors will also be scaled back.

Some analysts said the moves could jolt the market, which would damage consumer and business confidence. Others praised the steps as a way to engineer a sustainable slowdown.

New Zealand's response has added to calls in Australia for the federal government or regulators to step in amid soaring prices.

  • 6.7%

    Increase in property prices in Sydney in the last three months.


    Rise in prices in Melbourne


    Spike in prices in regional areas


    Price jump in capital cities

ANZ Bank is predicting prices in Australia will go up by about 17 per cent by the end of the year, said its economist Felicity Emmett.

She added that the banking regulator, Australian Prudential Regulation Authority (Apra), may need to impose further curbs on lending practices.

"Previously, they've introduced caps on investor lending and interest-only lending, so that's a possibility," she told ABC News.

But Apra chairman Wayne Byres recently suggested current lending practices did not appear to be excessively risky.

He noted that the regulator's role was to supervise the banks and promote financial stability, telling a Parliamentary committee: "It's not our job to solve house pricing affordability."

Australia's central bank, the Reserve Bank, said yesterday that the housing market was "being watched closely by regulatory authorities". It added that it was monitoring the risk of excessive borrowing. "Persistent increases in asset prices could lead to expectations that rises will continue and so increase risk-taking and borrowing, especially given low interest rates," it noted.

The surge in prices is taking place amid stagnant wages and a rise in unemployment in the past year.

In addition, travel restrictions have prevented the usual influx of migrants who tend to boost economic activity and add to demand for housing.

But Australia has effectively tackled the Covid-19 outbreak and its economy has recovered quicker than expected.

The main cause of the boom appears to be low interest rates, along with a claim by the Reserve Bank that rates will remain low for at least the next three years.

In addition, some people have saved money during the pandemic because of government stimulus measures as well as lower travel and entertainment expenses on the back of public health restrictions.

However, another cause is that many home owners are not selling.

The number of properties being listed for sale is more than 25 per cent below usual levels.

However, record auction clearance rates - and the frenzied pace of sales - suggest that demand will continue to match supply, even as vaccination roll-outs ease Covid-19 fears and sellers eventually emerge.

A version of this article appeared in the print edition of The Straits Times on April 10, 2021, with the headline 'Soaring home prices prompt calls for Canberra to step in'. Subscribe