Property bubble fears ‘overstated’

Second win in a row for local stocks

ANZ Australian chief executive Phil Chronican says we need more houses and apartments. Source: News Limited

CONCERNS rising property prices are fuelling a property bubble are "overstated" as there is a two-year shortfall of new homes in the system to meet existing demand, one of the nation's leading lenders said.

ANZ Australian chief executive Phil Chronican said the almost 6 per cent lift in house prices nationally over the past 12 months — to their highest level in three years — is likely to continue for the rest of the year as official interest rates are likely to remain at their record 53-year low.

Strong population growth however means the demand is much stronger than supply.

But the boss of the nation's fourth biggest lender — with a $180 billion mortgage book — admitted over the long-term the country is not immune and it is critical more houses and apartments are built to curb price rises.

"I think the concern (of a property bubble) is overstated," Mr Chronican said.

"At least part of the recent strength has simply been a rebound in housing market activity after an unusually extended period of subdued housing market sales.

"To stop this demand exacerbating the rising price trends though, we need to see a supply response. This will be good for the economy and employment — we need more houses and apartments."

The remarks came after the Reserve Bank raised concerns cashed-up self-managed superannuation funds may be overheating the housing market, as the market grows at a faster pace than wages.

But new data from credit rating agency Moody's released today shows the lower interest rate setting has helped push down residential mortgage arrears in five of eight states and territories in the 12 months to April this year.

Only Tasmania, South Australia and the Northern Territory registered a lift in 30-day mortgage arrears.

Nationally 30-day delinquencies fell to 1.59 per cent this year from 1.81 per cent last year.

Mr Chronican said the single biggest factor driving housing demand is population growth.

"What has protected Australia from a sharp downturn has been the absence of an excess supply and continued steady demand from a consistently growing population," he said.

"No excess supply and no collapse in housing demand; therefore no price collapse."

The maintenance of prudent lending standards by the majors is also vital if Australia is to avoid a property bubble, Mr Chronican said.

The latest official data shows Australia's population grew by almost 400,000 people in the 12 months to March, pushing the population past 23 million.

Overseas migration constituted more than 50 per cent of the population growth in that period.

But home building activity in Australia has remained largely unchanged at around 145,000 new homes per annum over the past 30 years, Mr Chronican said.

"ANZ estimates there's a shortfall of around 270,000 dwellings — equivalent to 20 months of housing construction," he said.

"So if population growth stalled it would take almost two years to eliminate the current underlying housing shortage."

The increase in offerings of risky 95 per cent loan-to-value-ration offerings — which allows borrowers to provide only a 5 per cent deposit has however seen the RBA and the Australian Prudential Regulation Authority recently warn all the major financial institutions not to grow market share by relaxing their lending standards.

Self-Managed Superannuation Funds were singled out as needing particularly close monitoring in the coming months as they often invest around 15 per cent of their portfolios directly into the property market.

SMSF's represent about one-third of the $1.6 trillion superannuation sector — up from 9 per cent in 1995.

This spike in the housing market is causing major headaches for the RBA as it tries to use lower interest rates to push down the Australian dollar and boost growth in the non-mining sectors of the economy while not inflating a property bubble.

The central concern is prices in Sydney, where the auction clearance rate is almost 90 per cent, and RP Data shows house prices have risen by more than 1.5 per cent in the past month.

But concerns about property price rises are not likely to subside anytime soon as Westpac chief economist Bill Evans — the most successful interest rate tipper in recent years — expects the strong Australian dollar will force the RBA to cut again as early as Melbourne Cup Day with a follow-up cut of another 25 basis points in the first quarter of next year.

Official interest rates are tipped to then stay at 2 per cent throughout 2014.

stephen.mcmahon@news.com.au

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