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If you are worried about all this talk about a housing 'bubble' and have delayed buying a property or put off other decisions as a result, then you have fallen into a well laid trap, or perhaps you are following a path that the RBA (Reserve Bank of Australia) and others are trying to steer you down.  
Don't believe me? Here's why  
This country's monetary policy in recent decades has been set and controlled solely by the RBA (this wasn't always the case). Fiscal policy is set down by the government of the day with the assistance of Treasury and the competing interests of other departments and that government's policy agenda (meaning it can get messy &amp; complicated).
As the name suggests, monetary policy relates to the supply and cost of money.
Interest rates are the price (cost) of money and, whilst they can also have an effect on supply, the RBA's legislative ability to regulate supply and cost has largely evaporated over the past  40 years or so with deregulation as they moved away from or eased legislated controls such as LGS and SRD ratios, abolition of interest rate ceilings, exchange controls and the like to a liability management model. You can read all about it <a target="_parent" href="https://www.rba.gov.au/publications/rdp/1989/pdf/rdp8904.pdf">here</a> in a research paper written by Ric Battelino and others of the RBA.
So, with the removal of that legislative ability to impose controls the RBA has come, through necessity, to rely more on setting interest rates but even then their ability to impose those changes in getting the banks to follow suit has been found wanting as we have seen in recent years with banks often choosing their own path. Even when banks do agree to change their lending rate on mortgages, especially when the change relates to a reduction, their internal policies often leave the client's monthly payments unchanged.
The big problem for the RBA in this deregulated globalised environment now that we have a floating dollar is the effect of interest rate changes on the rate of exchange for that dollar. Make no mistake  - the RBA is poised on a knife's edge in balancing it's interest rate policy lever. Here's why.  
The effect of the GFC
 
It's very nearly six years now since our markets started to head south. It was five years ago last month that Lehman Brothers collapsed and we were engulfed by the GFC, the biggest financial mal event since the great depression. No other financial event has received such widespread media coverage at a time when media reaches us at all times of the day and in every place we visit - like it or not.
Furthermore, financial news has never been so prominent and widespread.
Here in Australia we escaped the worst of the GFC yet it scared the pants off most investors, home owners, business people and those who need to be employed. As a result countless plans have been delayed, decisions put off, retirements avoided, expansion plans placed on the back burner etc, etc. All this has led to massive pent up demand, especially for housing as our population continues to rapidly increase.
With Australia's economy in good shape compared to most other western economies these past few years and the strength of investment in the mining boom our currency has been very strong which has hurt many sectors of the economy, (even mining), to the point where a lot are at, or near, breaking point. With mining entering a new phase it has now become very important and urgent to assist and stimulate those sectors through creating the conditions for a lower aussie dollar. For the RBA that means low interest rates.
To their frustration the low rates to date have not translated to people spending money. Retail prices are still low; profits patchy and minimal. The dent in confidence was deep. Conservative consumer habits developed during the GFC are proving hard to shake. Three years of a hung parliament with all the negativity it brought did not help, just exacerbated things. Yet all this time our population continued to grow. Pent up housing demand was growing, yet confidence and job security was still weak.
 
Change isn't just coming - it's here!
 
That's right and there is more to come. Confidence is returning and we've got a new government. People are back out looking to buy houses and it has got the RBA scared. They are scared because we not only have a major under supply of housing but also labour and resources required to build more.
The laws of supply and demand then dictate that this puts upward pressure on existing housing stock which does nothing to stimulate the economy and is counter productive to what the RBA wants. Pent up demand is so great that if left unchecked it may lead to a bubble. Then again it may not. But wasn't that a bubble in US housing prices that caused the GFC? Maybe  - in very simplistic terms. It's a good scary story though.
So in this deregulated environment what does the RBA do? Increase interest rates (and by so doing the aussie dollar) to pour ice on the housing market at the expense of every other sector such as manufacturing, retail, farm, tourism etc, etc? It's a dilemma.  
RBA's new power tool
 
A few years back, having lost most of their statutory controls the RBA discovered another powerful tool to harness. It's called publicity and use of the media. They noticed how the media hang on every nuance of the RBA Governor's utterance.
They need to keep interest rates down and they also need badly to stimulate the economy at large to fill a sizeable hole left by falling mining investment. Any uncontrolled surge in prices of existing houses is just not productive except for assisting a few real estate agents.
So what better idea than to flag in the media the possibility and then call it "likelihood" of a housing bubble? Try and scare the punters away before it ever happens. They've even enlisted the likes of APRA and other spokespeople to join in the cause.
This story has been getting a good feed and continues to do so. Insurance and fund management industry spokespeople even blamed self funded retiree's with their SMSF's as the main 'housing bubble' protagonists locking the poor (still scared) first home buyers out in the cold.
Of course they have a major axe to grind as they have witnessed the SMSF sector take charge of their own money management instead of entrusting it to them, depleting the pie that the fund managers controlled for many years by many billions of dollars, with more than $500 million dollars going into SMSF's each and every week according to the Institute of Public Accountants.
Fund managers don't like it and you can bet that they will be lobbying the new government for some changes  - just what I am unsure. For their part the government will also be eyeing that SMSF pie too because there's a huge stash of cash there. Oh how to make use of it?  
So what about the bubble? Evidence please  
Truth is there is no bubble. Sydney prices have been buoyant and auction clearances above 80%. According to RP Data Sydney prices were up 8.4% last 12 months whereas the previous 12 it was only 1.2% and the year before that they were down 2.4%. Prices elsewhere in the country have told a similar story in a general sense over the same period, though not as buoyantly as Sydney - yet.
Sydney always leads and we all follow.
Brisbane according to RP Data has only risen 1.8% these past 12 months after some decreases and a flat market following the extensive flooding experienced all over Queensland these past two ears. So follow we will, but is it a bubble?
The answer is an emphatic no. Have another look at those graphs that I featured in my <a target="_blank" href="https://www.embarkpropertyinvestment.com.au/blog/housing-bubble/">blog</a>, "Where to after the election", it's all there in black and white and easy to see. We are simply now in the early stages of upswing in the investment cycle. Remember how back in April and May we studied the property cycle in quite some detail? You can go back and read it again here if you missed it.
The fact is that the RBA does not want to increase rates or have plans to do so anytime soon. They do want to encourage broad activity however across most sectors of our economy, even new home building, but price inflation of existing housing stock is not a preferred outcome so they are attempting to scare people a little to slow things down avoiding use of their interest rate lever.

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Adrian Stagg<a title="This external link will open in a new window" target="_blank" href="https://www.linkedin.com/profile/view?id=81214303&amp;trk=tab_pro" rel="nofollow"></a> is a director of <a href="https://www.embarkpropertyinvestment.com.au/" target="_blank" rel="nofollow">Embark Intelligent Property Investment</a> and has been actively involved in the property industry since the 1970’s.
You can connect with Adrian via <a href="Adrian%20Stagg%20is%20a%20director%20of%20Embark%20Intelligent%20Property%20Investment%20(www.embarkpropertyinvestment.com.au)%20&amp;%20%20has%20been%20actively%20involved%20in%20the%20property%20industry%20since%20the%201970%E2%80%99s." target="_blank">LinkedIn</a>.
You can also read Property Observer's exclusive article with several of the countries top economists and commentators in the property space, who shared their thoughts on <a target="_blank" href="https://www.propertyobserver.com.au/economy/is-there-a-property-bubble-the-experts-have-their-say/2013100365490">is there is a property bubble?</a>
 
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Don't believe the RBA's 'bubble' scare tactics; and here's why: Adrian Stagg

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A few years back I was approached by an agent to buy a vacant lot which he thought might have been ripe for one into two lot subdivision. It had an extra wide frontage and, as he enthusiastically pointed out, it even had two street numbers, which immediately pricked my interest. In fact, on inspection I noticed that all the neighbouring properties were of similar size and I immediately wondered why they had not already been subdivided.
The answer soon became clear. They were not sewered. To subdivide one would need to provide sewer, the closest connection point of which was several hundred metres away and therefore not feasible for just two lots. The land on offer had a large <city>Greenfield</city> site to the rear which I had heard rumours about being developed into a large housing estate.
I visited the local council just to verify my thoughts and whilst there enquired as to what exactly was happening with the <city>Greenfield</city> site. To my surprise I learned that the subdivision had just recently been approved and that one of the conditions of approval was that they provide a sewer connection to the adjacent unsewered lots including the one I had been offered. This was a game changer!
In addition to putting a contract on the lot in question I also approached all the owners of the other unsewered lots that had suitably positioned homes to enable subdivision and managed to buy another two including the one next door to the first lot.
Now this is where it gets even more interesting. On checking the densities set down in the town plan I noticed that each lot had a plot ratio of 2.2 lots, meaning that together the two adjacent lots had a combined allowance of 4.4 lots.
The Queensland state government through it’s Department of Local Government has ultimate say over planning matters and actively encourages local councils where possible to allow development which uses existing infrastructure more efficiently. I wondered if this would enable me to turn our two lots into five?
There was another advantage in going for five lots because the second property acquired had a highset timber house on it which would likely need to be moved sideways or removed if four new evenly spaced lots were created whereas it fitted in just nicely in a five lot scheme.
Along with some joint venture partners we chanced our arm and succeeded in getting four new vacant lots and one other with the existing home remaining which was renovated to be sympathetic with the four new homes that we built there.
This turned out to be quite a profitable project. Two of the four joint venture partners including myself elected to sell straight away and those two homes were sold immediately at asking price. Tax liability could be dispersed because we were structured suitably. The other two partners each kept a new home for letting and to hold for the mandatory 12 months period until they at least qualified for the 50% capital gains tax rebate.
Sadly the market conditions deteriorated somewhat as has their likely selling price. Fortunately for them though they are still in a very profitable position due to the manner in which they acquired the properties in the first place. Had they bought the homes at ‘market price’ at the time they would still be playing catch up.
 
<hr>
 Adrian Stagg<a title="This external link will open in a new window" target="_blank" href="https://www.linkedin.com/profile/view?id=81214303&amp;trk=tab_pro"></a> is a director of <a href="https://www.embarkpropertyinvestment.com.au" target="_blank">Embark Intelligent Property Investment</a> and has been actively involved in the property industry since the 1970’s.
You can connect with Adrian via <a href="Adrian%20Stagg%20is%20a%20director%20of%20Embark%20Intelligent%20Property%20Investment%20(www.embarkpropertyinvestment.com.au)%20&amp;%20%20has%20been%20actively%20involved%20in%20the%20property%20industry%20since%20the%201970%E2%80%99s." target="_blank">LinkedIn</a>.
 
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Adrian Stagg

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