The Reserve Bank of Australia governor Glenn Stevens has warned that risky behaviour in the housing market could leave the economy "exposed to nasty shocks”.
Mr Stevens said the RBA was was keen to avoid a build-up of risk as low interest rates encouraged higher borrowings.
“The more prudent approach is to try to avoid, so far as we can, that particular boom-bust cycle,” Mr Stevens said.
“It is stating the obvious that at present, while we may desire to see a faster reduction in the rate of unemployment, further inflating an already elevated level of housing prices seems an unwise route to try to achieve that.”
He warned that as low rates made borrowing more accessible, it was necessary to increase the supply of available housing.
“Monetary policy can create conditions of easier funding and help the ability of the financial sector to extend credit. But it can't, for example, add to the supply of land zoned for housing, or improve the responsiveness of the construction sector to demand for additional housing stock,” he said.
“Other policies have to do that – and it's important that they do if we are to see easy credit result in more dwellings as opposed to just higher prices for the existing dwellings,” he said.
In his view, investors are investing in riskier markets in a bid for higher returns.
“The low returns on offer on safe investments in Australia, and the ultra-low returns on such assets internationally, are certainly having an effect by prompting investors to ‘search for yield’,” Mr Stevens said.
“Not only are returns on financial instruments low, but yields on the existing stock of physical assets – houses, commercial property, infrastructure assets – are being bid down.”
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