costello warns on housing market

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    Costello warns on housing market

    September 23, 2004

    AN international report warning that Australian house prices could be overvalued highlighted the need for disciplined economic management, Treasurer Peter Costello said today.

    In its latest World Economic Outlook, the International Monetary Fund found house price movements were surprisingly synchronised around the globe, reflecting the impact of global economy and interest rates.
    But this was not the case in Australia, where country-specific factors played a greater role.

    The IMF said Australian prices had increased by more than 60 per cent between 1997 and 2003 compared to an average growth of less than 40 per cent.

    As a share of household income, Australian house prices were the third-highest on a list of 11 developed countries after Spain and the Netherlands.

    The IMF report does not take into account an easing in house prices this year following back-to-back rate rises in late 2003, which have taken the heat out of the market.

    But it said in 2003, Australian prices had risen to a level that could not be explained by things like increases in household income, population and credit growth and interest rates.

    "I've repeatedly made the point that the kind of appreciation in prices that we've seen over the last three or four years couldn't continue in a sustained way," Mr Costello said today.

    "And a big part of economic management over the next two years is going to be managing the housing cycle - making sure that the housing cycle plateaus but doesn't crash.

    "And those people that think that all of the problems of the Australian economy have now been fixed ought to be very wary - there are big problems out there for Australia still, which are going to require disciplined economic management.

    "There are some people that think all of our problems have been fixed so we can risk it on someone with no experience - they're wrong."

    Mr Costello said while the housing boom had been good for the labour market as a whole, as it also provided jobs in associated industries, it was just as important to manage other sectors of the economy.

    "Housing is great for the labour market as it has a huge multiplier effect," he said.

    "We'll take a strong housing market that creates jobs any day.

    "But it's important that you have a balanced economy - we also need strong agricultural industries, we need strong mining industries, we need strong service industries."


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