The Congo line of analysts and commentators calling Australia's housing bubble has been growing longer recently. Now the Australian Treasury - the main custodian of Australia's economic policy - appears to have joined the chorus.
In what should ring alarm bells, and scare the heck out of anyone with a highly leveraged property position, this is what the Treasury has had to say about the matter (from the Australian newspaper):
A SENIOR Treasury official has sounded the alarm over Australia's property market.
He has warned that the prospect of a sudden and dramatic drop in prices is "the elephant in the room" and should not be ignored by the federal government.
While the government and Reserve Bank insist Australia does not have a housing bubble - as some economists and the International Monetary Fund suggest - it remains such a worrying concept that Treasury has privately sought reassurance from its analysts that prices are not artificially high and that Australia does not face the kind of house price collapse that has hit Britain and the US.
Documents obtained by The Weekend Australian under Freedom of Information laws show the Treasury officials preparing the so-called Red Book of briefs for the incoming government were as divided as private sector economists about the strength of the property market.
Anyone seeking to understand the "fundamentals" that the Treasury is referring to in relation to Australia's house prices only has to look at the below Reserve Bank of Australia (RBA) chart:
Sure looks like a bubble to me.
Not surprisingly, the Government continues to reject the claim that Australia has a housing bubble, citing recent bubble-denying reports by the RBA and the banks:
A spokesman for Wayne Swan said yesterday the Treasurer retained the view that Australia did not have a property bubble, citing recent reports and statements by Westpac and the RBA. "Of course, we expect our officials to test and debate policy within the department - it is an important and normal process of government," the spokesman said. "However, it is the considered position of the Treasurer and the Treasury that our housing market reflects the fundamentals of supply and demand and not a bubble - specifically that Australia is simply not building enough new houses."
The RBA has gone to great lengths to pull apart claims of a housing bubble by the IMF, Morgan Stanley economist Gerard Minack, legendary US investor Jeremy Grantham and The Economist magazine, even comparing and contrasting their modelling.
On Thursday, RBA deputy governor Ric Battellino sought to reassure the market that the slowing in growth of household debt would lessen the risks to the economy.
"The current picture is one where borrowing for housing is broadly growing in line with income, house prices are stable and there is little appetite for other forms of debt," Mr Battellino said. "From the Reserve Bank's perspective, this seems to be a satisfactory state of affairs."
The RBA believes demand was responsible for the early rise in property prices, and government restraint on housing supply prevented a US-style slump.
This blogger is heartened that the Treasury acknowledges the risks posed to the Australian economy and society from a sustained housing bubble, and deplores the RBA for ignoring the obvious.
It's just a shame the Treasury is five years too late in ringing the alarm. The horse has already bolted.
Disclosure: No positions