No risk of housing bubble forming in Australia: Treasury economist David Gruen

The threat of a bubble building in the Australian housing market has been dismissed by senior Treasury economist David Gruen.

Gruen, executive director of Treasury’s macroeconomic group, says there is no danger of a housing bubble because of Australia has an undersupply of homes unlike other major economies, which have built too many houses.

The housing bubble debate has received fresh oxygen of late with senior industry figures warning about the threat posed by rising house prices including ANZ Bank Australia CEO Phil Chronican and Barry Brakey head of property at the Future Fund.

However, others like John Symond of Aussie Home Loans, Meriton’s Harry Triguboff and Australian Property Monitors’ Andrew Wilson have dismissed these concerns.

Gruen also expects the housing market to play a role in driving the economy forward once the mining boom has run its course.

“In a couple of years, when mining investment does not contribute to growth any more, we will need other things to contribute to growth,” Dr Gruen told a Senate budget estimates hearing in Canberra today, as reported by the Australian Financial Review.

“One of the most obvious things [to contribute to growth] is the housing market, given that we think there is undersupply.

Such a contribution, he said, would be “a natural and desirable development and we are seeing early signs of it”.

Gruen said Australia was building no more dwellings now than it was a decade ago, so “we think there is net undersupply in the housing market”.

He contrasted the Australian undersupply picture with that of Spain, Ireland, UK and the US where very large house price increases were accompanied by “truly extraordinary” increases in supply.

He also told the estimates committee he expected the federal government to deliver on its budget surplus ambitions.

“Provided we are in a world in roughly trend growth and there is room to move on monetary policy, it seems to me an appropriate strategy to be aiming for surplus.”

And he expects the mining industry, currently in a lull with commodity prices falling, to be boosted again as more mining investment projects are  finalised.

“I guess I wouldn’t call the resource prices a bubble; I would call it a natural understandable response to a big increase in demand that was unanticipated,” he said.

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