On the same day that the RBA gave its clearest warning since the 2003 bubble that it is concerned about the state of Australian housing, Treasurer Joe Hockey told a conference in Sydney that talk of bubbles was “lazy analysis”.
Hockey told the Bloomberg conference that:
It is just an infinite mantra for international commentators, for analysts based overseas, to say ‘Well, you know, there’s a bit of a housing bubble emerging in Australia’.
That is rather a lazy analysis, because fundamentally we don’t have enough supply to meet demand.
That doesn’t suggest there’s a bubble; there might be a price increase of some substance, but you’d expect the market to react and produce some more housing.
Of course, what Hockey is suggesting is that unlike some areas of the US in the days before the GFC, where houses were being built in excess of demand, in Australia the supply-demand dynamics are very different. That’s because for many years now there has been more demand than supply.
But what the Treasurer misses is that the warning from the RBA and others is that this very imbalance between supply and demand is what is driving prices up to unsustainably high levels. Consequently the risk, when the supply response Hockey suggests eventually comes, is a destabilising collapse in prices.
That’s how markets work. Iron ore offers the perfect, and recent, example of what happens to prices when there is a supply-demand imbalance with an eventual supply response.
The Treasurer might wish to consider before in a sense declaring there is nothing to see here. There is nothing lazy in the RBA’s warning and the Treasurer and buyers of property would do well to heed it.