RBA warns of housing supply crisis: “We have to get supply moving”

In a candid address to the Senate Economics Legislation Committee in Canberra this week, Reserve Bank of Australia (RBA) Governor Michele Bullock laid bare her concerns over the nation’s persistent housing supply crisis. As property prices soar and rental markets tighten, Bullock’s insights come at a critical time for Australia’s housing sector, which she suggests is overly reliant on investors.

“The issue with the housing market is supply and demand – we have demand for housing that outstrips the supply of housing and it’s occurring both in housing prices and rents,” Bullock explained. Her remarks underscore a growing anxiety among policymakers and the public alike, as the availability of affordable housing continues to dwindle. “There’s more demand for rental properties than there are rentals available,” she added, highlighting the acute pressure on the rental market.

Bullock’s testimony before the committee was comprehensive, touching on not just housing but also inflation, interest rates, and employment. However, it was her comments on the housing sector that drew the most attention. “The country has got to get supply of housing moving,” she urged, pointing to a complex web of planning and construction challenges that governments must navigate. “My observations, certainly living in New South Wales, is the governments are trying very hard,” Bullock noted, acknowledging the efforts being made at various governmental levels. “But it involves planning, it involves construction and a whole series of other things governments are looking at and I encourage them to keep looking at.”

The RBA governor also delved into the intricate dynamics of investment in the housing market. “Investors can exacerbate the cycle of the housing market,” she remarked, shedding light on the dual role investors play. “It’s complex because on one hand investors do buy houses, but then they rent them out to people.” This duality, while providing rental stock, can also intensify market cycles, a concern that Bullock did not shy away from addressing.

Historically, the RBA has expressed apprehension about the risks associated with high Loan to Value Ratios (LVRs). Bullock acknowledged this, stating, “That introduces vulnerabilities into the system, which is a concern.” However, she offered a note of reassurance, observing, “But at the moment though, we don’t see it manifesting in a severe way. We aren’t seeing LVRs and debt-to-income ratios rising substantially. That’s a positive.”

Despite these reassurances, the governor emphasised the need for vigilance, particularly concerning investment behaviours that could further destabilise the property market. Earlier this year, the government took a decisive step by imposing a two-year ban on foreign buyers, aiming to stabilise the market. While this move is anticipated to have a significant impact, Bullock cautioned that Australia remains unusually dependent on investors. “It’s not just the lack of public housing stock in Australia but build to rent, corporation-owned housing and pension fund-owned housing options,” she said. The current structure, where much of the rental stock is held by individual investors, is atypical compared to other major economies.

“In Australia, the rental stock is a bit unusual because it’s effectively owned by investors,” Bullock explained. “The question is if there were less investors, would there be more houses to buy? You’d still have a need for renting so, who is going to provide the rental stock? It’s a complicated situation.”

Throughout her testimony, Bullock maintained a cautious optimism about investor behaviour aligning with the RBA’s expectations. “At the moment, what we observe with investors is typically what we observe in these cycles, which is that investors are the first ones to pick up,” she stated.

While the committee pressed for specific policy recommendations, Bullock was clear about her remit. “My policy that I have control over is the interest rate,” she said. “But supply is the big thing here. It’s been a structural issue for many years.” Her comments resonate with the broader understanding that while monetary policy can influence the market, the underlying supply issues require a multifaceted approach involving planning, construction, and regulatory reforms.

As Australia grapples with its housing challenges, Bullock’s insights serve as both a warning and a call to action, urging policymakers to address the structural issues that have long plagued the nation’s housing market.