Housing again at forefront of Australia’s economic growth, making banks happy

Miraculous. That’s how Commonwealth Bank’s boss described Australia’s economic recovery last week.

But it was a strange word to choose.

“Miraculous” can suggest a miracle has occurred, which implies the hand of God has been involved.

If we start thinking that way, we’ll forget how the economy actually recovered.

It could also make it harder to know what to do about house prices, which are surging for very human reasons. 

Fiscal policy worked

Australia’s economy is growing so strongly at the moment because of massive amounts of government spending (fiscal policy) and exceptionally low interest rates (monetary policy).

Our Commonwealth, state and territory governments spent hundreds of billions of dollars to support the economy through the pandemic, and we’re seeing the results.

In July, in the middle of the lockdowns, the national unemployment rate hit 7.5 per cent.

But the latest figures show the unemployment rate has already fallen back to 5.6 per cent.

As we speak, more people are employed than ever before.

Before the coronavirus pandemic, the previous peak was 13,008,700 people in paid employment.

Last month, there were 13,077,600 people in paid employment.

This has occurred while international borders have been closed, so the rate of population growth has pulled back sharply.

The participation rate is now sitting at a record high of 66.3 per cent.

That means the size of the labour force, as a proportion of the working-age population, has never been larger.

Business conditions are at a record high. Consumer confidence is at an 11-year high.

All of these things are linked to massive government spending (both here and abroad) and health measures that prevented the virus getting out of control last year.

It’s not a miraculous outcome but it’s welcome.

Many issues remain

However, we can’t say it’s mission accomplished.

There are still 778,100 people officially unemployed.

Universities, small businesses, the arts sector and parts of the tourism sector have a long way to go before they can say they’ve fully recovered.

The mistakes the federal government has made with the vaccine rollout could disrupt the recovery and cost the economy dearly.

But at the moment, job vacancies are high and employers are reporting difficulties finding workers with suitable skills.

And property prices are surging, which is creating its own set of problems.

It means housing is again at the forefront of Australia’s economic growth after COVID-19.

But how sustainable is the rebound? Will policymakers intervene to slow property prices down?

Property prices an issue, again

Last week, the chief executives of Australia’s big four banks appeared before a parliamentary committee in Canberra.

They all spoke about the property market.

Perhaps unsurprisingly, none of them thought it was necessary at the moment for regulators to slow the rate of property price growth.

Rising property prices are good for business.

They said the current surge in property prices was different from the last cycle because some of the biggest gains in prices were occurring in regional areas and places where prices were subdued in the last cycle, so the price growth was more evenly distributed across the country.

But they said they were watching how different markets around the country were developing.

Here are some of their current views on broad dynamics in the property market:

Matt Comyn, Commonwealth Bank chief executive

CBA thinks property prices will grow by 10 per cent this year.

Mr Comyn said owner-occupiers and first home buyers were accounting for a much larger share of the demand this time around.

Roughly 75…