Transport spending the key

RBA boss says infrastructure can lift housing affordability

RISING household debt and property prices could make it “dangerous” to cut interest rates, the head of the Reserve Bank has said.

And more spending on trains, buses and roads holds the key to improving housing affordability.

RBA governor Philip Lowe told a federal parliamentary economics committee yester- day that while further cash rate cuts might deliver a short-term boost to jobs and inflation, it may also elevate red-hot property prices and household debt to worrying levels.

“Is it really in the national interest to create a little bit more employment growth in the short run at the expense of creating vulnerabilities which could be quite dangerous in the long term?” Dr Lowe said. RBA figures show the household debt-to-income ratio is at 187 per cent, and total household debt is equal to about 123 per cent of Australia’s gross domestic product.

“I accept different people will come to different points on judging that trade-off; at the moment we’re in a reasonable place because the unemploy- ment rate is broadly steady and household debt and house price growth at the aggregate level are fast enough,” he said.

The governor said the best thing the Government could do to ease pressure on property prices would be to invest in urban transport infrastructure.

He said with a growing population, crowded cities, poor land supply and the diffi- culties people encounter moving around, investment in urban transport infrastructure would be “a first order gain”.

“It’s probably the best housing affordability policy,” Dr Lowe said.

The RBA is sticking with its forecasts for economic growth of about 3 per cent this year, despite a projected slowdown in home building. Dr Lowe said growth will be bolstered by higher commodity prices, the end of the fall in mining investment and higher liquefied natural gas exports.

However, he remains concerned about China’s debt levels and the potential for a major slowdown there to hurt medium-term growth at home.

“That risk is out there and it’s getting bigger and it’s clear if it did materialise it would have a first-order effect on our economy,” he said.