Assistant treasurer says strong prices in Sydney and Melbourne are not unsustainable, but says ‘everyone has to be careful’ when borrowing for property

This article is more than 5 years old

This article is more than 5 years old

The assistant treasurer, Josh Frydenberg, has disputed the top Treasury official’s concerns about housing price bubbles.

The federal government’s senior economic adviser, Treasury secretary John Fraser, told a budget estimates hearing last week that Sydney was “unequivocally” experiencing a bubble and this was also the case “in higher priced areas in Melbourne”.

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Frydenberg said on Sunday that while Sydney’s price increases were “strong”, he did not believe they were evidence of a bubble.

“I don’t think there is a housing bubble. I think housing prices have gone up but it went up higher in the early 2000s,” he told the ABC’s Insiders program.

“I’m saying that we need to watch the housing price growth and Apra [Australian Prudential Regulation Authority] and the RBA, which are the regulators, are doing that, but at the same time we have seen strong housing prices before.

“In the early 2000s housing prices increased by 20% for three years in a row and then were steady for a decade and there wasn’t a bubble that led to a major correction. So we have seen these sorts of rises in housing. It’s a function of a number of thing. It’s a function of population growth, it’s a function of state governments not engaging in enough land release. It’s a function also of foreign investment. That’s why we’re introducing changes around foreign investment too.”

However, Frydenberg agreed that people should take care when borrowing to purchase properties. “Well, everyone has to be careful,” he said.

The Australian Greens have argued the case for negative gearing to be abolished on new housing investments, saying it will save nearly $3bn over four years and could cool the housing market.



The Greens have had the proposal costed by the independent Parliamentary Budget Office, arguing generous subsidies to investors have driven up the cost of housing.

Tony Abbott did not respond directly to the opposition’s questions about the bubble claims in parliament last week, and instead accused the Labor leader, Bill Shorten, of wanting prices to go down.

The debate was fuelled by Fraser’s testimony to the Senate’s economic committee on Monday. The Treasury secretary and member of the Reserve Bank of Australia (RBA) board said he was worried that low interest rates were “encouraging people to perhaps over-invest in housing”.

“When you look at the housing price bubble evidence, it is unequivocally the case in Sydney,” Fraser told the committee.

“Frankly, whatever the data says, just casual observations tells you it is the case. It is certainly, I think, the case in the higher-priced areas of Melbourne. And I base that on my own observation as well as the data.

“For the rest of Australia, the evidence for a bubble is less compelling. The fact is, though, house prices are high. Certainly in Sydney I think it is having a palpable impact on young people trying to get into the housing market, and I think that is highly unfortunate.”

Other experts have shared similar concerns. The RBA’s assistant governor, Malcolm Edey, resisted using the same phrase, but acknowledged the market was overheated.

“Reserve Bank staff have tried hard in the last couple of years to avoid getting into discussions about whether you call this a bubble on not, mainly because different people have different definitions about what the word ‘bubble’ means,” Edey told an estimates committee hearing.

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“Sometimes people sensationalise it, if you use that word. I know that a lot of people do think it is a bubble; serious people think that. We agree that this is a situation where the market is strong; it is overheated; it is a risky situation. Some people call that a bubble.”

The chairman of the Australian Securities and Investments Commission, Greg Medcraft, said last month that he was worried about the Sydney and Melbourne property markets.



“History shows that people don’t know when they are in a bubble until it’s over,” he told the Australian Financial Review.