RBA’s Lowe warns on high debt, house prices

Adam Smith 5 May 2017

underwater house1The RBA governor has warned against rising levels of household debt.

Reserve Bank governor Philip Lowe has warned that high levels of household debt and high housing costs could pose risks to the economy.

In a speech in Brisbane, Lowe said that rising house prices have pushed household debt levels higher.

“The high cost of housing is a real issue for many Australians and can have serious side-effects. High levels of debt and high housing costs can also reinforce the existing distribution of wealth in our society, making social and geographic mobility more difficult,” Lowe said.

Lowe said rising house prices and low interest rates had attracted investors, who now accounted for 30-40% of new loans.

“This borrowing is not the underlying cause of the higher housing prices. But the borrowing has added to the upward pressure on prices caused by the underlying supply-demand dynamics. It has acted as a financial amplifier in some cities, adding to the already upward pressure on prices,” Lowe said.

Lowe argued that a major economic shock could have severe effects on the housing market given the high level of household debt.

“Double-digit growth in debt owed by investors at a time of weak income growth cannot be strengthening the resilience of our economy. Nor can a high concentration of interest-only loans.”

Image: Shutterstock

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