Citi chief economist says immediate fix needed for 'property bubble'
Australia needs to fix its “spectacular housing bubble” with tougher regulatory measures, according to Citigroup Inc’s chief economist Willem Buiter.
A shortage of housing and record-low interest rates has made Sydney the world’s second-most expensive property market. Home prices in Australia’s biggest city jumped 16 per cent in the 12 months through April, helping stoke record household debt which has also been cited as a concern by the central bank.
“It had better be focused on immediately, to try and tether a soft housing landing,” Buiter was quoted by Bloomberg as saying.
“Clearly if these things are not managed well they can be a trigger for a cyclical downturn.”
Michael Pascoe, the Fairfax Media columnist noted there had been "wildly disproportionate coverage" given to visiting Citi chief economist Willem Buiter.
"Buiter has been forecasting a recession for a couple of years now," Pascoe said.
"If he keeps it up, odds are he will eventually be right.
"While waiting for that, it's bemusing that a visiting fireman who apparently is not very well informed about the Australian economy is taken so seriously and granted such wide coverage," Pascoe said.
Buiter's comments certainly add to the growing commentary over whether Australia has a property market bubble - where house prices are over-inflated compared to a benchmark - and when it might burst.
Property Observer has previously outlined four scenarios where this could happen, based on expert views.
In response to a tighter regulatory environment aimed at taking the heat of the east coast property market, the country’s biggest banks have made home loans for investors and interest-only mortgages more expensive relative to owner-occupier loans.
The Reserve Bank of Australia has cited the east-coast property markets and their impact on financial stability as a key concern. While it’s reluctant to cut the benchmark interest rate from the record low 1.5 per cent and stoke further price rises, lifting borrowing costs would place a greater burden on households saddled with debt already at 189 per cent of gross domestic product.
Buiter also warned that a downturn in China would hurt Australia more because of its dependence on commodity exports. He is forecasting a downturn in China, Bloomberg reported.
“The good news for Australia is of course that its performance is the best of any advanced economy,” he said. “You still have a little bit of monetary policy elbow room left and, as far as I can tell, a lot of fiscal elbow room left.”
Buiter urged the country to do more to boost its infrastructure pipeline, and ensure there was a long list of “shovel-ready” projects to cope with any downturn.
