Avoiding a Housing Bubble

The Reserve Bank’s Tony Richards has today (30th Sept) urged local Councils and the QLD State Government to create the environment for the supply of more new homes in order to prevent a house price bubble from occurring. But the real problem is the lack of sufficient development finance for new subdivisions and apartments.

The Federal Government should urgently make it easier for second tier financiers to attract capital by removing the Government’s deposit guarantee granted to the ‘four pillar’ banks. This would redirect investment deposit monies toward specialist property financiers who offer higher interest rates to investors, and specialise in lending for new property development.

At the moment, most investor deposit funds have flowed to the four pillar banks because of the protection offered to investors by the Government’s guarantee of all deposits less than $1 million. But what is needed is a level playing field, allowing second tier and traditional property financers to compete for investor deposits to use for lending on property development, which will flow into new housing supply.