Is the RBA inflating a property price bubble?

PHOTO: The Reserve Bank of Australia doesn’t see rates rising for at least three years so

A growing gap between residential property prices and rents could mean the RBA’s unprecedented rate cuts and expected quantitative easing are laying the groundwork for the next property bubble.

A growing divergence between residential property prices and rents could mean the Reserve Bank’s unprecedented rate cuts and expected quantitative easing are laying the groundwork for the country’s next property bubble.The International Monetary Fund’s standard definition of a bubble is “a positive deviation of the market price from its fundamental value”.

Fundamental value for property typically includes the income from rent. Official figures from the Australian Bureau of Statistics released this week recorded falling rents across the country.

In Sydney, rents have now either fallen or not grown for seven consecutive quarters. They are now down 3.1 per cent annually in the September quarter.

In the more volatile cities of Perth and Darwin, rents have either fallen or not grown for 23 consecutive quarters. In Melbourne, Brisbane, Adelaide and Hobart rents all fell.

Population growth, unemployment and supply will determine future rent