Australia’s Treasury Says Sydney Is 'Unequivocally' in a Housing Bubble

Updated on
John Fraser
Australian Treasury Secretary John Fraser. Photographer: Andrew Harrer/Bloomberg

Sydney is in the grip of a housing bubble, Australia’s most-senior economic bureaucrat said in one of the strongest warnings yet by a government official.

“When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney -- unequivocally,” Treasury Secretary John Fraser said in testimony before a parliamentary committee in Canberra Monday. “Frankly, whatever the data says, just casual observation would tell you that’s the case.”

Home prices in Sydney rose 15 percent in May from a year earlier although they fell 0.7 percent from April, according to Corelogic RP Data. Australia’s major banks have said they will curb growth in home loans to investors after the country’s financial services regulator asked lenders to limit expansion of these mortgages to 10 percent a year.

“It does worry me that the very, very low -- historically low -- levels of interest rates are encouraging people to perhaps over-invest in housing,” Fraser said.

The Reserve Bank of Australia cut its cash rate target to a record 2 percent in May while lending to investors is near a record high. The proportion of home lending to speculators rose to 40.8 percent in March, just shy of the 40.9 percent record in December, according to government statistics.

Exposure Manageable

RBA Assistant Governor Malcolm Edey, who also appeared before the committee, said the central bank had avoided characterizing the housing market as a bubble because the term is defined differently by different people.

“A lot of people do think it’s a bubble, serious people think that, and we agree that this is a situation where the market is strong, it’s overheated, it’s a risky situation,” he told the committee.

The measures taken by the Australian Prudential Regulation Authority on mortgage lending are starting to have an effect on banks’ behavior, Edey also said.

Fraser, who took up his role in January, said he didn’t see the house price gains as a major risk to the financial sector.

“We do a lot of consultations with the banks, the four major banks and we recently had in the regional banks, and they’re very much alive to the issues and they’ve taken their own internal measures, as they should, to make sure their exposure is manageable,” he told the committee.

House price moves have been more modest elsewhere in the country having increased 9 percent on average across the country’s eight state and territory capital cities from a year earlier. The price gains have spurred a pick up in dwelling investment with building approvals having risen 16.3 percent in April from a year earlier, data released Monday showed.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE