The long Sydney lockdown has created a strange paradox where house prices have risen even as the economy struggles.
In the past week,labour market data showed that hours worked each month in NSW has fallen sharply because people have been stood down or lost shifts because of the lockdowns. At the same time,house prices are now 19 per cent higher than they were 20 months ago,before anyone had heard of COVID-19.
Some argue this is a sign that Australia’sproperty market is an irrational bubble destined for a bust. Forecasts of a collapse in house prices have been wrong in the past,and we suspect they are just as unfounded now. Indeed,no one should hope for a sharp drop in house prices,which would damage the economy.
Reserve Bank governor Philip Lowe last week explicitly ruled out using his power to raise interest rates to curb house price rises. To do so would be a bad trade off,he said,because rising interest rates would mean “fewer jobs and lower wages growth”.
The problem of rising house prices is not the absolute level of house prices but the fairness for young people looking to buy a house for the first time.
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It is particularly acute because young people have been most affected by the lockdowns and made the most sacrifices for lockdown. Their incomes have,in many cases,fallen the most.
This is the real issue that has emerged at an inquiry into housing affordability and supply that opened its public hearings last week. As the RBA said in its submission:“For those looking to purchase a property,the combination of low-interest rates,low-income growth,and high median housing prices have made it harder to save a deposit.”
Forecasts of a collapse in house prices have been wrong in the past,and we suspect they are just as unfounded now.
In the longer term,it is important to help people acquire the security of owning a home,including those on lower incomes. But this is not a crisis:while house prices have risen,renting is currently cheaper in the inner city. Without demand from foreign students,many new apartments are desperate for tenants.