Working Papers

Another Small Catch from the FOI Desk at the Oz

Another fishing expedition from the FOI desk at The Australian turned up this, with the following sub-editorial spin:

THE Reserve Bank deliberately intervened in the political debate over the property boom to stop governments releasing more land.

While I’m certainly not above using the FOI process to get a headline, a little more context would have been appropriate for this story. Luci Ellis wrote an RBA RDP in 2006 that argued that it was the combination of a demand-side shock from increased household sector leverage in a low inflation-low interest rate environment and an inflexible supply-side that gave rise to the early 2000s house price boom.

I agree with Chris Joye that the RBA had it wrong in the early 2000s and has now changed its tune. The RBA’s fingering of negative gearing in its 2004 submission to the Productivity Commission inquiry was possibly an attempt to set the government up as a scapegoat in case the early 2000s housing boom had ended badly in the context of a monetary policy tightening cycle. The RBA’s then jaw-boning of a supposedly over-heated market now looks rather quaint.

There has been a change in leadership at the RBA since then. Glenn Stevens’ more recent comments about ‘serious supply-side constraints’ in housing are pretty brave by the standards of an Australian central banker (imagine the reaction to Stevens making an even vaguely critical remark about the NBN and you will see what I mean). They are a damning criticism of policy at all levels of government. The only reason it hasn’t been written up that way is that many in the media simply don’t believe that housing affordability is a supply-side problem requiring supply-side solutions.

posted on 22 November 2010 by skirchner in Economics, House Prices, Monetary Policy

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It seems the housing “shortage” has vanished overnight on the Gold Coast and Perth.  There are probably other economic factors at play on the Gold Coast (severely depressed domestic tourism) but Perth?  Isn’t that the epicentre of monumental resources boom?

God knows how you supply-siders can interpret the RBA’s comments as a vindication of your position.  I know Chris Joye is traveling in a parallel universe (with a third universe for his ego), but I expected better of you.  Ellis is saying, quite emphatically, almost mockingly, that its not all about the supply side.  AFAICT, these are quotes not sub-editorial spin:

“The people pointing to supply-side factors really believed at the time that if only these supply restrictions didn’t exist, prices would not have risen quickly. This is just rubbish, and we said so.

...she warned the RBA against statements that supply was more of a problem than demand and “housing would be affordable if only those nasty supply restrictions were abolished”.

She’s actually mocking you.  Do you live in a Reality Distortion Field?

Now I’m not about to suggest that there aren’t supply problems in certain real estate markets, and certainly better policy would help, but to suggest the demand side is not important, and its not playing a role in Australia’s relatively high house prices is just bonkers.

Posted by .(JavaScript must be enabled to view this email address)  on  11/25  at  08:37 AM

“but to suggest the demand side is not important, and its not playing a role in Australia’s relatively high house prices is just bonkers.”

Don’t know anyone who claims that, myself included.

Posted by skirchner  on  11/29  at  11:32 AM

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