Ross Greenwood speaks to Chief Economist at ANZ Richard Yetsenga as the ANZ Bank has released a report predicting house prices in Sydney and Melbourne will soon be growing at double-digit rates.
Ross Greenwood: I want to take you to the subject of interest rates, and in particular, what’s going to happen next. After having basically told Australians that the next interest rate moves are likely to be down, you had overnight, the governor of the Reserve Bank, Philip Lowe; he was in New York, and effectively gave a speech, where he said, “Maybe it’s not a foregone conclusion. The rate is going to keep on falling.” He said here, there’s nothing wrong with your dollar falling. He made that observation. Not everybody can get their currencies around the world to fall. So this is just a little of what he said that made the market wonder whether in fact the next move in interest rates is down or not.
Philip Lowe: In my view, we’re now clearly in the world of diminishing returns to monetary easing. If that’s right, then the solution to the problem lies elsewhere, and that as I said is creating an environment that encourages investment. Without progress on this front, the main effect of lower interest rates is to push up the price of existing assets, rather than encouraging investment in new assets, which is what’s needed.
Ross Greenwood: Okay. So what’s needed he says is investment in new assets. In other words, people to take a risk on building something brand new, or investing in something brand new to try and get a return out of that; to create jobs, to create infrastructure, to create all those things. The problem is, he says, is that existing asset prices start to go up. So it’s timely to see a report from the ANZ Bank today, which is forecasting the house prices in Melbourne and Sydney. This time next year will be growing at double-digit rates. In other words, above 10%. The chief economist of the ANZ is Richard Yetsenga, who’s great with his time. Many thanks for your time this evening, Richard.
Interview with: Richard Yetsenga, ANZ, Chief Economist
Richard Yetsenga: Hi, Ross.
Ross Greenwood: Just explain, where do you get this idea that Sydney and Melbourne house prices by this time next year, they’re going to be growing so vigorously after in many suburbs, house prices fell by more than 20%.
Richard Yetsenga: In fact, they’ve started rising already, of course. If you overlay what’s going on, interest rates have fallen 75 points this year. We think they’ll fall a little bit further next year. You’ve had some relaxation and potential requirements. The election was important to the extent it took away some uncertainty about potential tax changes around the property market. You’ve had a cyclical change, big changes in policy certainty around the environment. As the governor Philip Lowe suggested, the uncertainty around the future means that existing assets are doing better perhaps than they should.
Ross Greenwood: Okay. The other thing we’ve heard in the last couple of days is really the expectation and this comes again from the Reserve Bank, that there could be a shortage of building; basically, that it’s building construction, that these going to be in scarce supply over the next couple of years. That being the case, it’s generally been a case when not enough homes are built, but population continues to rise, that eventually prices are squeezed higher, which it could be argued is one reason why the housing boom or bubble, if you like, occurred over those past few years, especially centered around Melbourne and Sydney.
Richard Yetsenga: Look, I think that’s a fair point. It does go to I think the issue of why is it so expensive in Australia to build houses, why still do we build dwellings which are among the largest in the world. Not all the time, of course. There’s been the rise of, no pun intended, that a high-rise apartment complex particularly in the last five years where apartments have much smaller in size, but generally still the housing stock in Australia is of quite substantial size scale by global comparisons. There’s some supply-side issues I could look at their in the housing sector.
Ross Greenwood: Okay, just one thing. Does it please you to be able to report that in 12 months time or so, those house prices in Melbourne and Sydney might be growing by double-digit numbers given the fact the very worst thing for most economies and most individual markets is a boom-bust cycle.
Richard Yetsenga: No, it doesn’t at all. To be honest, from my perspective, I’d prefer the house prices went back to rising much more slowly. It would be better in terms of access to dwellings for all sorts of people in the community. It would be a more stable environment. You just get the sense that we’re pushing ourselves further down the road of using up the remaining arms of policy impact, and getting further into territory where monetary policy can bail us out if we have a really big problem. That is an enormous challenge.
Ross Greenwood: Richard Yetsenga, the chief economist at the ANZ Bank, really underscoring the problem. You get interest rates so low; suddenly, house prices popping again, making it less affordable for many first homebuyers in particular. That is a genuine problem. Richard, I appreciate your time here on the program this evening.
Richard Yetsenga: Thank you very much, Ross.
Ross Greenwood: Richard Yetsenga, the chief economist at the ANZ. There you go. Big call that one. The house prices in Melbourne and Sydney will be growing at double-digit rates, above 10% by this time next year.
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