In his final address to Parliament, the RBA chief says Australia is on a "narrow path" to achieve the central bank's inflation target
Reserve Bank Governor Philip Lowe has highlighted the strong population growth and home buyers' expectations of stable borrowing rates as key factors behind the resurgence in national housing prices.
In his valedictory testimony to parliament, the outgoing central bank chief called on governments at all levels to implement land zoning reforms to boost housing supply, while cautioning against short-term policy interventions such as first-home grants and rent controls that could exacerbate the issue, according to a report by The Australian.
“The solution has to be putting in place a structure that makes the supply side of the housing market more flexible,” he said.
Lowe emphasised the need for a structural transformation of the housing market to enhance its supply side, The Australian reported. This includes zoning and planning deregulation, as well as the active involvement of state and local governments. Despite five consecutive months of increasing national home values, prices are still below their peak levels in April last year, just before the RBA began raising interest rates.
Housing Affordability
To address the pressing issue of housing affordability, supply, and renters' rights, Opposition Leader Anthony Albanese has called for a national cabinet meeting. Labor premiers and the Greens are advocating for stricter controls on landlords such as rent freezes.
Read next: Why is Australia’s official cash rate lower than NZ’s?
As Lowe's seven-year term ends in five weeks, he stressed that without a recession that destroys jobs, the nation remains on a "narrow path" to achieve the RBA's mandated inflation target of 2-3% by late 2025, according to The Australian.
Inflation and Productivity
Over the past year, the RBA's primary focus has been on managing the highest inflation rate in over three decades. Lowe acknowledged progress in this regard but cautioned against premature declarations of victory. He highlighted the importance of productivity growth, calling it the "No. 1 medium-term economic issue."
Lowe urged policymakers to pursue tax reform, invest in education and digital technologies, and implement better regulations to enhance the nation's supply side and raise productivity, The Australian reported.
“The RBA’s forecasts have been prepared on the basis that growth in productivity picks up to be close to the rate in the years before the pandemic, which would contribute to a moderation in growth in unit labour costs and thus inflation,” he said. “If this pick-up in productivity does not occur, all else constant, high inflation is likely to persist, which would be problematic.”
Lowe warned that persistent high inflation can lead to reduced spending power for the entire community, particularly the poor, and increase income inequality.
“If high inflation does become ingrained in people’s expectations, history teaches us that the end result is even higher interest rates and even greater unemployment,” Lowe said. “It is for these reasons that the Reserve Bank Board remains resolute in its determination to return inflation to the 2–3% target range within a reasonable time frame and will do what is necessary to achieve that outcome.”
The RBA has maintained its official interest rates at the past two monthly board meetings.
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