• 24/07/2024

Regulators unfazed by ‘upward pressure’ on house prices

John Kehoe| Australian Financial Review| 4 December 2019


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The country’s top financial regulators have tipped that an under construction of apartments will put further “upward pressure” on property prices, but they appear relaxed about the recent surge in Sydney and Melbourne house prices.

The Council of Financial Regulators quarterly meeting statement published on Wednesday said housing credit growth remained subdued, signalling that regulators typically pay closer attention to home loan growth than house price changes in assessing financial stability risks from the property market.

“Growth in housing credit remains subdued overall, with credit to investors particularly weak,” the Council said in a statement, following its meeting last Friday.

“Owner-occupier loan commitments and housing turnover in Sydney and Melbourne have picked up, suggesting that a strengthening in credit growth is likely.

“Mortgage lending standards have been broadly unchanged recently.”

“Overall, near-term risks related to the housing market have lessened as housing market conditions nationally have improved.

“Members discussed the potential for the current weakness in apartment construction to place upward pressure on prices in some cities over time unless construction picks up.”

House prices rising

The Council is chaired by Reserve Bank governor Philip Lowe and attended by the heads of the Australian Prudential Regulation Authority, Australian Securities and Investments Commission and Treasury.

House prices in Sydney and Melbourne have rebounded strongly in recent months, following cuts in the RBA cash rate to a record low 0.75 per cent and a voter rejection of Labor’s proposed curtailing of negative gearing and capital gains tax breaks.

Property prices in Sydney surged 2.7 per cent in November, the highest monthly growth rate since 1988, while Melbourne property values grew by 2.2 per cent over the same period, according to the latest CoreLogic Home Value Index.

Sydney is now on track to recoup the 15 per cent loss in prices suffered during the 18-month downturn early next year and reach a new record high by March.

Some economists and analysts have suggested that APRA, with the backing of the RBA, may need to reapply “macroprudential” lending restrictions on banks to slow down the growth in property prices.

Byres talks down intervention

However, APRA chairman Wayne Byres told a parliamentary hearing on Monday the regulator’s focus was on credit growth and lending standards, and not specifically property prices.

“We don’t target house prices, we don’t seek to set house prices … we are much more interested in credit provided by the bank,” Mr Byres said.

“Credit growth is still low … need for immediate action is not obvious.”

APRA earlier this year loosened home loan rules, which had been in place since 2014, that had required banks to test the serviceability of prospective borrowers against a 7 per cent mortgage rate.

The banking regulator earlier also cancelled a 30 per cent cap on the proportion of interest-only mortgages issued by a bank and the 10 per cent annual growth restriction on lending to property investors.

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