House prices to rise further but they're worth it, says RBA
November 26, 2009, SMH
WORRIED that $607,000 is too much to pay for a Sydney house? The Reserve Bank isn't and it expects prices to climb even higher.
In a speech that amounted to a defence of Australia's historically high house prices the Reserve Bank deputy governor, Ric Battellino, told a housing conference yesterday to expect worse and to recognise home buyers were getting value for money.
Australians had been spending more of their income on housing than ever but had been getting bigger and better houses as a result
. Almost half of the $250 billion shelled out on housing each year was spent on alterations and additions, Mr Battellino said.
While there was ''a common perception that house prices relative to household income in Australia are high'', the country's population was ''more concentrated in a few large cities'' than other populations and Australians had more free income with which to pay for housing.
''Australians seem to spend less of their income on non-housing consumption than is the case for US households, with a significant part of this difference explained by lower health costs in Australia,'' Mr Battellino said. ''Australian households as a whole appear to have the financial capacity to sustain a relatively high ratio of housing prices to income.
'It is certainly the case that the ratio is higher now than it was 20 years ago. However, this is largely explained by the fact that lower interest rates have allowed households to take out bigger home loans without increasing housing loan repayments. In turn this has given households more buying capacity in the housing market, which has been reflected in house prices.''