The minutes of the RBA’s monetary policy meeting, released this week, noted that building approvals had been lower over prior months, particularly for higher-density dwellings, suggesting that this pipeline of construction work would continue to be worked off in coming quarters.
Members noted that changes in the rate of home-building lag changes in population growth and that this had affected housing prices in some markets in the preceding few years.
“Growth in housing prices had remained brisk in Sydney and Melbourne, where population growth had been relatively strong, but had been weak in Perth, where population growth had fallen significantly following the end of the mining investment boom,” the RBA said.
“At the same time, there had been some indications that the large increase in supply in the inner-city Melbourne and Brisbane apartment markets had weighed on prices, particularly in the case of Brisbane.”
The Reserve Bank believes the additional supply of apartments scheduled to be completed over the next couple of years in the eastern capital cities is expected to put some downward pressure on growth in apartment prices and on rents, particularly in Brisbane.
Following a strong period of growth, investor lending has stabilised in recent months, which the RBA noted is consistent with the decline in loan approvals to investors.
“Household credit overall had grown at an annualised rate of 6 per cent over the six months to March. Variable housing interest rates had increased since late 2016, particularly for investors and interest-only lending,” the minutes said.
“As a result, the average estimated interest rate on major banks' outstanding housing lending had increased slightly, while the average cost of funding was estimated to have been little changed.”
Meanwhile, the RBA noted that growth in housing credit had continued to outpace growth in household incomes, which “suggested that the risks associated with household balance sheets had been rising”.
The board judged that developments in the labour and housing markets warranted “careful monitoring”.
[Related: Major banks make changes to IO lending]