Costello rejects critics on housing
By Sid Marris and AAP
September 29, 2003
THE benefits from rising house prices had outstripped the risk of rising debt, but all investors should be cautious, Peter Costello said yesterday.
While urging Australians to be careful not to borrow too much, the Treasurer said the main effect of the housing bubble had been to improve Australians' wealth and underpin economic confidence.
The warning came as economic forecaster BIS Shrapnel, in a report to be released today, cautions rising inflation in the next three years will force the Reserve Bank to lift interest rates to more than 10 per cent - adding $110 to average weekly mortgage repayments.
BIS Shrapnel said the economy would accelerate sharply next year, requiring a substantial rise in business investment and employment, and leading to a fully fledged economic boom by 2005-06.
Senior economist Matthew Hassan said households deep in debt "would be hit by a double-whammy, with high mortgage rates followed a year later by a rise in unemployment".
"Some households could be forced to sell, and into a weak market," he said.
Mr Costello yesterday disputed Labor claims that the International Monetary Fund's decision to list the housing bubble as a potential risk amounted to a warning from the world economic body.
He insisted the IMF had not suggested that the housing bubble was a threat to the economy.
"No, they are not warning that at all," he told the Seven Network. "What they are saying is that it is an enormously resilient economy, that we probably have the strongest fiscal position of any of the developed economy in the world."
In its half-yearly World Economic Outlook, released two weeks ago, the IMF listed sharply rising house prices as a risk to a number of industrialised countries, including Australia.
The comments followed a reluctant admission by Treasury Secretary Ken Henry that Australia was at risk from a "housing bubble".
Mr Costello said that with interest rates at near 30-year lows, and the share market a poor investment in recent years, the attraction of property had been obvious.
"For most people, it's actually added to their wealth and it has kept confidence in the economy," he said.
But HSBC chief economist John Edwards yesterday disputed whether rising house prices had provided a boost to consumption.
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