While RBA says 'housing price boom wasn't our fault'
A global bank has revised its forecast for where rates will peak after parliamentary testimony from Reserve Bank Governor Philip Lowe.
George Tharenou, UBS Australia chief economist, increased his predicted peak or “terminal” cash rate from 2.85% to 3.1%, according to a report by The Australian Financial Review.
“Importantly, for neutral rates, Lowe was hawkish, saying he expects positive real rates, about their inflation target mid-point of 2.5%,” Tharenou said.
Lowe said at the current rate of 2.35%, “we’re getting close to that range that you think is normal, but probably still on the low side.”
“Hence, it now appears more likely the RBA hikes to a higher peak than we previously expected,” Tharenou said. “Meanwhile, UBS global economics also materially revised up forecasts in recent weeks for the expected peak in central bank rates.”
Tharenou predicted the RBA would hike rates by 25 basis points at each of its next three meetings, AFR reported.
Lowe, meanwhile, has said the RBA isn’t to blame for high housing prices. He also posited that Australia’s high housing prices are due to decisions made by Australian society rather than skyrocketing construction costs, AFR reported.
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“It’s the choices that we’ve made as a society have given us high housing prices, and high housing prices come not from the high cost of construction – they come from the high cost of land embedded in each of our dwellings,” he said. “So why do we have a high cost of land embedded in our dwellings? It’s because of the choices we’ve made – the choices we’ve made about taxation, the choices we’ve made about zoning and urban design, the fact that most of us have chosen to live in fantastic cities on the coast.”
Lowe also said Australians didn’t want to live in high density and had chosen as a society to underinvest in transport.
“So all those things together have either reduced the supply of well-located land or increased the demand for well-located land, so we have high land prices embedded, which give us high housing prices – and interest rates have influenced the cycle, but not structurally,” he said.
