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The usually careful and well considered Reserve Bank of Australia is taking a huge gamble on the Australian economy into 2019 and 2020.
The RBA is betting that the current slump in house prices and dwelling approvals are orderly and will not have any material or lasting consequences for the economy. In fact, RBA Governor Philip Lowe believes the fall in Australian house prices “is good news”, “manageable” and “a welcome development”. Further, in its November Statement on Monetary Policy, the RBA suggested that house prices “have continued to ease gradually”, which is a remarkably bland assessment given that close to $400bn has been wiped off the value of Australian houses since the price peak in September 2017.
Governor Lowe and the RBA’s open indifference to what is a major shift in the $7trn valuation of residential property is bold.
Wealth and household spending – The link
While some cooling in house prices was always inevitable following the price boom in the four years to 2017, the price falls are getting close to a point where the loss of household wealth will impact household spending. The RBA itself and a bevy of global academic research show a link between changes in household wealth and growth in household spending.
How Labor’s plans to revamp negative gearing could put a floor on house prices and lower rents
The economic policy debate over Labor’s plans to overhaul the negative gearing rules is hotting up.
It is an important debate on a policy change that will have implications for the housing market, particularly for first home buyer and investor demand.
The government is claiming that the negative gearing change will “take a sledgehammer”, “smash” and “punish” everyone in Australia. Treasurer Josh Frydenberg says that under Labor, “your home will be worth less and renters will pay more.”
It is a frightening scenario for property obsessed Australians with the value of all dwellings in Australia estimated to be around $7 trillion.
But is it true? What are the facts about the current housing cycle and how will Labor’s plans to revamp negative gearing impact the housing market?