Reserve Bank of Australia (RBA) Governor Glenn Stevens says he is not “terribly troubled” about the level of house prices in Australia.
“I don’t think we have huge rises going on … we have quite modest growth in house prices for the past year or so,” he said at the Australian Business in Europe lunch in London.
Mr Stevens said the ratio of income to house prices in Australia was “not exceptional by global standards.” Of course this is in contrast to a recent report by the Economist Magazine that claimed Australian houses are the most over priced in the world.
“That would seem to me to be consistent with a household sector that is being more careful and has properly observed what has happened in other parts of the world.
“There is quite often quoted very high ratios of price to income for Australia, but I think if you get the broadest measures country-wide prices and country-wide measure of income, the ratio is about four and half and it has not moved much either way for ten years.
“That is higher than it used to be but it is actually not exceptional by global standards.”
He said in a speech that Australia needed to better manage its trade boom because the nation has a history of not managing booms “terribly well”.
He said a few things are working in the nation’s favour.
“Historically, Australia has often not managed periods of prosperity conferred on us by global trends terribly well. On this occasion, we have to do better,” he said.
“We are now engaged in a national discussion about how to stretch the benefits of the resources boom over a long period, and how to manage the risks that it will bring.”
Mr Stevens said the exchange rate was helping the economy adjust to the current high levels of terms of trade, led by resource exports.
He said households were more cautious about running up debt following the global financial crisis.
“Having taken on quite a degree of debt over the preceding fifteen years or so, households have thought better of taking on too much more,” he said. “They are saving more than at any time for twenty years or more.
“So are households in many other countries, of course, but our good fortune is to be making that adjustment against a backdrop of rising income.”
He said managing the boom was complex, and would involve a wide range of policy areas – macroeconomic, microeconomic, taxation and industrial.
“But if that discussion can be conducted in a mature fashion, and followed up with sensible policies, then we have a good chance of leaving to the next generation a wealthier, more secure and more stable Australian economy,” Mr Stevens said.
Source: various news reports including AAP
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