Michele Bullock: The housing market and financial stability

Address by Ms Michele Bullock, Assistant Governor (Financial System) of the Reserve Bank of Australia, to Bloomberg Inside Track, online, 22 September 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I would like to thank Jonathan Kearns, Natasha Cassidy, Michelle Wright and Amelia Gao for assistance in preparing this talk.

Thank you for the opportunity to speak with you today. When the pandemic hit Australia in early 2020, policymakers entered a world of unknowns. The health situation required drastic curtailment of much economic activity. Fiscal and monetary policy both responded quickly and strongly. Governments provided substantial financial support to firms and individuals who overnight lost business and jobs. The Reserve Bank reduced interest rates to historically low levels and introduced a suite of other policy measures to lower funding costs and interest rates across the economy. The banks offered borrowers deferrals on their loan repayments. There were moratoriums on evictions and rent relief for businesses and households. The idea was that we were building a bridge to get us over the economic crevasse created by the pandemic.

At that time we were writing our Financial Stability Review. Things were changing so quickly that we seemed to be rewriting it daily. It ended up being quite a different style of Review than we would typically produce. Its focus was on the ability of the financial system to absorb the shock and support the economy. It also focused on the potential implications for household and business balance sheets. In particular, we noted the decline in demand in the residential property market and highlighted the risks this could pose to highly indebted households. To quote:

"A key financial stability risk is the extent to which the weakness in economic activity spills over to the housing and commercial property markets. The prospect of large declines in property prices presents significant balance sheet risks for households, businesses and lenders."