‘Bad idea’: Experts warn property market intervention will push out young buyers
First home buyers and low-income earners will find it harder to buy into the Sydney and Melbourne property markets if regulators intervene, with experts warning mooted rules limiting lending could worsen the housing affordability crisis.
The Australian Prudential Regulation Authority is putting together a new plan to step in and cool the property market with new rules following price rises worth hundreds of dollars a day during the pandemic and calls from major banks, the International Monetary Fund, OECD and the Reserve Bank for more to be done to manage financial stability risks.
Homes have been selling rapidly under the hammer during the pandemic with prices surging across the country.Credit:Stephen McKenzie
So-called macroprudential rules on banks typically include limits on particular types of lending or tightening income-to-loan ratios, but think tanks, politicians and economists are now concerned that inequity in major cities where prices have been surging could be further exacerbated.
Grattan Institute economic policy program director Brendan Coates said this type of regulatory intervention could add to the problems facing buyers.
“Macroprudential means restricting access to credit and on affordability grounds it can make things worse,” he said, adding the regulator should be focused on financial stability not house prices. “If you can still borrow it benefits you [as it can limit price growth] but if you can’t, you may not be able to buy and first-home buyers tend to be more leveraged.”
In the past, APRA has intervened to restrict investor activity but this time, Mr Coates said regulators were more concerned about high debt to income levels among buyers more broadly as property price growth far outpaced income growth.
Centre for Independent Studies chief economist Peter Tulip said a debt-to-income ratio, where people are limited to borrowing only a certain amount of money linked to a multiple of their income, was a “very bad idea”.
“Lots of people, in particular young families, can’t get a deposit together for a house. Lending restrictions make that even harder, they deny access to finance to people that don’t have much equity.
“There is a big equity problem with rising house prices and lending restrictions make it even more inequitable,” he said.
He said loan to value ratios, requiring higher deposits from borrowers, made more sense but would still affect borrowers who most need assistance with housing affordability.
While rising house prices and indebtedness should prompt a focus on financial stability, he said regulators should solve these concerns by increasing bank equity for stability and boosting supply for affordability.
“In my view, the problem we have with housing affordability is a very long-run problem, it gets worse every decade, and so we need to be thinking about longer run solutions,” he said.
Liberal MP Jason Falinski, who is the chair of a federal inquiry into housing affordability, agreed with the need for more supply over intervention.
“The problem here is we have an issue created by a lack of supply and instead of dealing with this shortfall we now have a systemic risk [prompting regulatory intervention that] will make it harder for young Australians to buy,” Mr Falinski said.
“Yes we want APRA to manage systemic risk, but these risks have been created by the fact the market can’t respond by building more housing because of state and local government restrictions,” he said.
AMP Capital chief economist Shane Oliver has called on the regulators to provide carve outs for first-time buyers to ensure they aren’t affected by the crackdown.
But he forecasts national average house price growth will slow from 20 per cent this year to 7 per cent in 2022 if there is regulator intervention.
“If everything else is unchanged, but there is no [intervention from regulators] then I would revise up to around 10 to 12 per cent or so average house price growth for next year,” Dr Oliver said.
He said the monthly pace of growth in housing debt is above the 7 per cent annualised pace when APRA first moved to tighten standards in late-2014.
New investor lending excluding refinancing has jumped from $6.5 billion in January to $9.4 billion in July, on Australian Bureau of Statistics data. Lending to owner occupiers over the same period has risen from $21.9 billion to $22.8 billion.
“While it’s coming a bit later than we expected, financial regulators are now starting to express concern about rising levels of household debt relative to income and APRA now looks likely to use macroprudential controls to slow down housing lending growth from later this year,” he said.
“Unlike last time around investors are now playing a smaller role in the surge in home lending this time – so the regulatory focus is likely to be broader this time around focussing on measures to restrict lending to high debt to income ratio and high loan to valuation ratio borrowers and increased interest rate serviceability buffers,” Dr Oliver said.
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