2 it is worth emphasising that the purchase of a property by a foreign citizen or temporary resident may not contribute one for one to net housing demand in australia. for instance, there would be little effect on net demand if the property purchased is used to house foreign students who would otherwise have needed to rent during their stay here. similarly, net demand for housing would be little changed if an investment property is subsequently rented out. there is no comprehensive information on the magnitude of these types of transactions. so, while it seems likely that foreign residential purchases have added somewhat to net housing demand in australia, there is no way of knowing the exact extent to which this has been the case. whether an increase in net housing demand – be it from foreign or domestic sources – leads to higher housing prices depends on the responsiveness of supply. this subject has been see rba ( 2014 ), “ submission to the inquiry into foreign investment in residential real estate ”, 9 may. see gauder m, c houssard and d orsmond ( 2014 ), “ foreign investment in residential real estate ”, rba bulletin, june, pp 11 – 18. bis central bankers ’ speeches especially topical of late, with housing prices nationally rising by close to 10 per cent over the past year. the rise in prices has primarily reflected increased housing demand from australian residents and citizens, partly owing to low interest rates. the supply of housing is responsive to a rise in housing demand but, given the time needed to plan and build new housing, this typically occurs with some lag. however, several factors can accentuate this lag, including : • a shortage of well - located land and geographical constraints in our capital cities • the complexity of the planning and approval process, which adds to the time and costs of new housing developments • concerns of existing residents in regard to new development projects in their vicinity. these are not easy issues to address, although it is widely agreed that an appropriate balance needs to be struck if housing is to be provided at a reasonable cost. through the bank ’ s business liaison, we hear from housing market participants that impediments to increasing the supply of housing in some greenfield areas have eased in recent years. also, there has been interest in converting some of the older office buildings in central business districts into residential use, which may ease the shortage of land in highly sought after areas. however, our contacts also report that more could be done to increase the responsiveness of housing supply to demand.

external assets and liabilities in the context of a rational balance sheet approach. iv. options linked to comfort let me now link the availability of options with the degree of comfort. first, it may be useful, for practical purposes, to view the adequacy of reserves in terms of degree of comfort they offer at a given time. second, while considering the level of reserves and comfort derived there from, it will be necessary to take into account the investment and the stabilisation funds, if applicable. further, transferability from official reserves to such funds and vice versa, and the extent of liquidity required, also need to be considered in assessing the comfort level. third, relative emphasis on safety, liquidity and return keeps changing with the degree of comfort at a given level of reserves. fourth, it must be noted that from a national balance sheet point of view, official reserves have to reflect the potential market infirmities in the private sector. so, if there are high returns derived from high risks assumed due to larger risk appetite of the external asset managers, then deploying official reserves too in the high - risk assets would exacerbate the risks. official reserves may be needed as a cushion when markets get suddenly risk averse and hence, safety and liquidity should normally have higher orders of priority in the management of reserves. fifth, it is possible for a central bank to have tranches – each tranche reflecting a different combination of safety, liquidity and return. each tranche can be managed by the central bank or an external asset manager, or both, in parallel, to benchmark their relative performance. finally, and above all, the criticality of the accountability in the use of reserves must be recognised. it is useful to note that the reserve management policies normally involve joint responsibility of the government and the central bank – irrespective of in whose balance sheet they appear. v. concluding observations i would like to recall here what i had said in this regard in 2003, at the annual fund - bank meetings in dubai : " the reserve accumulation could also be seen in the context of the availability of abundant international liquidity following the easing of the monetary policy in industrial countries. the resultant excess liquidity flowed into the emerging markets. in the event of hardening of interest rates in industrialised countries, this liquidity may as quickly dry up ; in that situation, emerging markets should have sufficient cushion to withstand such reverse flows of capital. " now, with the