Finance Property OECD warns of a ‘rout’ in house prices
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OECD warns of a ‘rout’ in house prices

High property prices are putting the economy at risk, think tank warns. Photo: Getty
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Skyrocketing house prices and ever-rising household debt have exposed the Australian economy to “extreme vulnerability”, a new report from the OECD has warned.

In its first major assessment of our economy since 2014, the Paris-based organisation — the research arm of the world’s richest nations — said the property market is showing “hints of a slowdown” that could trigger “a rout on prices and demand” that spreads to all other parts of the economy, cutting consumer spending and pushing up mortgage defaults.

House prices have increased in real terms by 250 per cent from the 1990s, the OECD said, and most of that increase had taken place over the past few years, particularly impacting first-time buyers in Sydney.

At the same time, the nation’s ratio of household debt to GDP has hit a record high at 123 per cent, the third highest in the world, the report found.

The report seemed to suggest that measures should be taken to slacken demand from investors. It also noted that foreign investors had not had a “substantial impact on growth”, instead attributing this to investors and owner-occupiers.

“House prices and household debt have reached unprecedented highs, in part because policy-rate cuts have lowered debt servicing costs,” the OECD found.

“A continued rise of the market, fuelled by both investor and owner-occupier demand, may end in a significant downward correction that spreads to the rest of the economy.”

The OECD also warned a renewed plunge in global iron ore and coal prices, impacting Chinese demand, could cause further cost savings and investment cuts among mining companies, impacting jobs and incomes.

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The OECD has issued a warning about Australian house prices. Photo: Getty

In this case, the government should be prepared for economic stimulus, with the OECD describing Australia’s debt as “moderate” by world standards.

The OECD said Australia was well-placed to handle any forthcoming shocks.

These warnings were contained in an otherwise positive assessment of the economy.

The survey was finalised before this week’s national accounts, which showed a marked turnaround in the economy after a weak spot last year, resulting in an annual growth rate of 2.4 per cent at the end of 2016.

In the survey, the OECD forecasts growth of 2.6 per cent in 2017, rising to 3.1 per cent next year.

This will see the unemployment rate ease from 5.5 per cent this year to 5.3 per cent in 2018, the report said.

The jobless rate was 5.7 per cent in January.

– with AAP

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