A slowdown in the residential property market in Australia could have a significant impact on the national economy, the Treasurer has warned.
“If you look at the overall economy, it’s been a really good one for the last three years,” Treasurer Scott Morrison said on Tuesday.
But he said that the impact of the slowdown was more acute in metropolitan areas, which have seen a big fall in the number of properties available to buyers.
In Sydney, the number and rate of sales in residential properties fell to a record low in August, after the peak for the month, and a rebound is expected in the coming months.
More than 10,000 properties sold last month, the lowest level since April 2013, and the number is forecast to reach the lowest since the financial crisis, when it was at 5,929.
Mr Morrison said that while Australia’s economy was doing well, its “home” market, which had been growing steadily since the global financial crisis in 2007, was slowing.
He said the national housing market was the biggest drag on economic growth in Australia, but that this was not the case in other countries.
The treasurer said he would not rule out a return to the Reserve Bank’s “high inflation” target, which has been used to slow the rise in the cost of living.
Australia’s economy grew by 1.6 per cent in the last quarter, which is about the same as the global average.
Its unemployment rate stood at 6.4 per cent last year, down from 6.6 in the final quarter of 2015.
A number of economists have argued that Australia’s low interest rates and high housing affordability have caused the economy to slow, and Mr Morrison said he did not believe the Government was playing fast and loose with the economy.
However, he acknowledged that the current low interest rate environment, and continued low housing prices, could create pressure on the economy, with more people going to buy homes, which could in turn reduce demand for capital.
Economists said there were still risks to the economy if the market continued to deteriorate, but the Treasurer said there was a “safe haven” in the Reserve bank, where the interest rate was “neutral” and could be used to stimulate growth.
While there is concern about the Reserve’s balance sheet, Mr Morrison dismissed it as “an asset” that could be sold off if needed.
With the Reserve down to just a quarter of its pre-crisis average of $3.6 trillion, he said the Government would continue to support the economy by keeping interest rates “close to zero”.
He also defended his Government’s policies to help Australians buy homes.
For the last four years, the Government has cut interest rates from the ultra-low base, to the “moderate” rate, which he said was a positive step towards a healthy economy.
But he conceded that the Reserve was “underperforming” and had “lost credibility”.
Mr Abbott said that despite a recovery in the economy and rising house prices, the economy was still a “slim” job market.
And he said it was “a very, very challenging” job to keep the economy moving.
“But the Government’s been successful in doing so,” he said.
On Tuesday, Mr Abbott also told the ABC that the Federal Government’s housing policies, which include the “biggest house-building program in the history of the country”, were working.
“[The] biggest part of our success in house building is the Government is providing subsidies to people to buy houses,” he told the program. ABC/AAP