Reserve Bank governor Philip Lowe has tried to soothe Australian borrowers' concerns about the prospect of higher interest rates, saying it will occur at a time of stronger wages and jobs growth.
He also told federal politicians that after two years of saving through the COVID-19 pandemic there is an extra $250 billion in people's bank accounts, while home owners have built "big buffers" when it comes to paying the mortgage.
"Three years ago the median borrower had a buffer the equivalent to one year's interest and mortgage repayments," Dr Lowe told the House of Representatives economics committee on Friday
"Today the median borrower has a buffer of more than two years of mortgage payment. Households, by and large, have been pretty sensible."
In his six-monthly appearance before the committee, Dr Lowe indicated that the cash rate could rise from its record low of 0.1 per cent later this year.
"Higher interest rates will be occurring where people have got stronger wages growth and jobs," he said.
In the past year house prices have risen by a national rate of over 20 per cent and the highest since June 1989, making home ownership out of reach for many.
"There is no silver bullet here, but like most things, prices are determined by a combination of demand and supply," Dr Lowe said.
He said it is important to address the supply side, which includes well-located land, good transportation policy, and good planning and zoning policies.
"It is the supply side that needs to be more flexible," he said.
He said in the past couple of years there has been very strong demand for floor space due to the pandemic with people working, and their children learning, from home.
"We can't do very much about the demand side. People understandably want houses, they want to live in the fantastic cities Australia has and they want a block of land," Dr Lowe said.
Meanwhile, homelessness advocate Everybody's Home is calling on the federal government to include the building of 25,000 new social housing dwellings in this year's March budget to help tackle the worsening affordability crisis.
Everybody's Home's Kate Colvin said an investment in social housing was urgent and worthwhile.
"A secure home is the foundation for stability and security. It means you can look after your health, tend to your family, join the workforce and contribute to society. Without a home, none of these things are possible," she said.
"As our leaders put the final touches on the budget, they need to be aware of the full benefit of social housing as well as the deep human cost of not providing people with a home."
