Major political parties fire shots at one another over housing affordability

Updated

The major federal parties are continuing to attack each other over housing affordability.

After Treasury secretary John Fraser declared on Monday that Sydney was in a housing price bubble, Prime Minister Tony Abbott said he wanted housing to be affordable but also hoped prices would keep "modestly" increasing.

Labor seized on the comment, and yesterday Mr Abbott hit back, accusing Opposition Leader Bill Shorten of wanting the value of homes to fall.

"He wants that asset that they have invested their heart and soul on to be worthless," Mr Abbott said.

In a statement released overnight, Mr Shorten rejected the suggestion.

"What a patently absurd assertion," he said.

"Tony Abbott's Treasury secretary has said there is unequivocally a housing bubble in Sydney and parts of Melbourne.

"If that's what the Treasury secretary is saying, is the Prime Minister even listening?"

Labor senator Sam Dastyari said Mr Abbott was at odds with Mr Fraser.

"You have the secretary of the Treasury say … that there's a bubble," he said.

"At the same time you have the Prime Minister say the exact opposite, that he wants to see prices keep increasing.

"What we don't have at the moment out of any of this is a proper plan, a proper solution and a proper pathway to make sure we're addressing some of the major housing concerns, particularly in the capital cities."

Lower housing prices means weaker economy: Senator Canavan

Queensland Nationals senator and former productivity commission economist Matt Canavan said the best way to address housing affordability was to strengthen the economy.

The life cycle of a housing bubble

Low interest rates, loosening lending standards bring borrowers into the market

Demand for property increases in the face of limited supply

Supply takes a relatively long time to replenish and increase

Speculators enter the market believing profits can be made through short-term buying and selling

Demand increases further

Interest rates rise, lending standards tighten

Demand decreases, or stagnates; supply increases

Prices drop sharply

The bubble bursts

(Source: Investopedia)





(Source: Investopedia)

"I certainly don't think we should be aiming for lower house prices, which seems to be the policy of the Labor Party, because lower house prices would mean a weaker economy," he said.

"The way we're really going to get affordability, and what we can do at the Commonwealth level, is to make sure we have a strong economy, make sure people have a job, make sure people can earn the money they need to save up for a deposit and get their own home."

Yesterday the Reserve Bank left the official interest rate unchanged at 2 per cent.

In its monthly statement the central bank acknowledged strong growth in housing prices in Sydney but said it was "varied" in other parts of the country.

Senator Canavan said it would have been wrong to lift rates because of an over-heated property market in just one part of the country.

"I don't think we should have economy-wide policy measures like interest rates trying to target problems in one city because what the Reserve Bank does doesn't just impact Sydney," he said.

"It impacts Rockhampton, it impacts Townsville, it impacts Tamworth, it impacts Karratha and all these places don't necessarily have the problems of Sydney.

"Indeed, in some areas of Central Queensland and Western Australia house prices are falling considerably because of the mining boom tailing away."

The issue is expected to come up in Senate Estimates today.

Topics: federal-government, housing-industry, business-economics-and-finance, australia

First posted