A senior official from the Reserve Bank of Australia (RBA) warned about the risks of the drastic rise in the supply of Sydney’s apartment market to financial stability.
The apartment market in Sydney is now quite soft after the city added more than 80,000 apartments in the past few years. This resulted in higher housing stock in the area — up by about 5%, RBA Assistant Governor Michele Bullock said in a speech.
“Our main concern with this from a financial stability perspective is the potential for this large influx of supply to exacerbate declines in housing prices and so adversely impact households’ and developers’ financial positions. Currently, the risks here appear to be elevated but contained,” she said.
The slow response to demand pressures in the east coast housing market led to the increase in Sydney property values—up 75% in the five years to mid-2017. By the time the new apartments were listed online, the demand had decreased, and prices dropped, according to RBA Governor Philip Lowe.
The property market has also been affected by tightening credit as banks controlled their lending to investors and imposed stricter rules on borrowers during the banking royal commission.
Bullock said that data show reduced demand for credit as a major contributor in the housing slump compared to tighter lending conditions.
“All we can do, and all the [RBA] can do, is continue to encourage the banks. Please think very hard about whether or not your lending standards are too tight and whether you can loosen up a bit,” she said.
Apartment prices in Sydney have dipped since their peak, rental vacancies have risen, and rents are declining, according to a Bloomberg report.
