The deputy governor of the Reserve Bank of Australia (RBA), Guy Debelle, told an audience of economists at the Shann Memorial lecture on Thursday night that the RBA was interested in only one thing when it came to monetary policy and that was getting unemployment down to a level that would lift inflation into the 2-3% band. He indicated that this might not be until the unemployment rate had a 3 in front of it.
Dr Debelle said in his lecture that this might mean that Australia experienced a housing price bubble for some time before the bank increased interest rates. As he said:
“…there are a number of tools that can be used to address the issue. But I do not think that monetary policy is one of the tools. Monetary policy is focussed on supporting the economic recovery and achieving its goals in terms of employment and inflation.”
The conclusion of the RBA appears to be that although housing prices may not be higher with higher interest rates, unemployment would certainly be higher with higher interest rates. The RBA is telling the government that housing prices are not its problem and if there is a problem for first home buyers wanting to get into the housing market then the government will have to fix it with regulation or some other policy instrument.
On Sunday the Treasurer, Josh Frydenberg, revealed three measures as part of the ‘pandemic budget’, designed to ease the problem of housing affordability. The first measure will increase from $30,000 to $50,000 the maximum amount of voluntary contributions aspiring homebuyers can take from the First Home Super Saver Scheme. This will enable home buyers to accumulate a deposit faster because they will only have to pay 15% tax on the income deposited into a super saver account.
There will also be another 10,000 places added to the First Home Loan Deposit Scheme, which can only be used for new housing. This means-tested measure allows first home buyers to build a new home or buy a newly-built one with a deposit of as little as 5%.
In addition to this, the government has announced a single parent housing initiative. This programme will help single mothers and fathers overcome one of the “biggest hurdles” to achieving the dream of home ownership.
The new Family Home Guarantee for single parents will support up to 10,000 single parents with dependants over four years, commencing 1 July 2021.
It will help not only first home buyers but also single parents attempting to re-enter the housing market after divorce and family breakdown.
Like the existing First Home Loan Deposit Scheme, it will be subject to property price caps that restrict the benefits based on the state where the single parents live.
All of these initiatives will lead to a hotter housing market, particularly as investors are likely to pile back in as housing prices rise and interest rates remain low.
But as Guy Debelle says, this may be the price of getting more people back into work.
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