Why house prices – and rents – are likely to keep rising

The Reserve Bank is still worried about rapidly rising house prices.

It confirmed that yesterday in the statement it issued explaining the latest of its three consecutive monthly rate rises.

The bank’s Governor, Glenn Stevens, said:”credit for housing is expanding at a solid pace.”

But he added:”and dwelling prices have risen significantly this year.”

Oddly, though, the three rate rises the bank has now ordered could contribute to further rises in house prices and rents.

As the housing industry noted yesterday, Australia’s population is rising faster than the rates at which new homes are being built, for some time.

The Housing Industry Association’s Chief Economist, Harley Dale, is adamant about that.

“While a residential construction recovery is under way, there is compelling evidence that the upswing will be insufficient to make a major dent on Australia’s chronic housing shortage,” Dr Dale said.

“Today’s rate increase is not helpful,” he added.

There was evidence late yesterday, too, that homebuyers might have to meet more than the 25 basis point rise, that the Reserve Bank announced.

The Westpac bank said it would be increasing its standard mortgage rate by 45 basis points.

In doing so, it defied the Treasurer, Wayne Swan, who had said earlier that he could see “no justification”  for banks increasing their rates by more than 25 basis points.

But Westpac insisted that its rise had been made necessary by the cost pressures it now faces, when it raises money in today’s financial markets.