(Transcript from SBS World News Radio)
Home buyers could soon face tougher lending rules as the Reserve Bank of Australia considers ways to rein in the booming housing market and protect the economy.
The move comes amid concerns investors are inflating prices.
But as Thea Cowie reports, there are serious concerns about placing restrictions on lending.
(Click on the audio tab above to hear the full report)
House prices have risen more than 10 per cent in the past year, according to property research business RP Data.
In Sydney, they've jumped almost 24 per cent in two years.
The RBA is worried soaring house prices and rapidly growing investor activity could pose risks to the economy.
RBA Governor Glenn Stevens says he's particularly concerned about lending to property investors.
"One area that I think is of concern right now and that is that investor finance is growing at double digit rates. It's nearly half the flow of new approvals. A lot of this is interest only lending in an environment of rising house prices especially in Sydney and Melbourne."
The RBA fears that if prices fall and home owners start struggling with repayments and declining wealth, they could cut back on spending and hurt economic growth in the process.
In a bid to protect the financial system and the wider economy, it's looking to curb risky lending.
Glenn Stevens says the RBA is in talks with the Australian Prudential Regulation Authority about new measures, which could include lending limits.
"I see not much downside of doing so. The worst that could happen is it doesn't have that big an effect but if it had some, and that helped us to square in some small way all the conflicting things that we have going on, that is worth a try."
Chief economist at Bank of America-Merrill Lynch Australia, Saul Eslake, says these types of measures are not usually taken by the central bank to control the housing market.
But the more common move, of lifting interest rates, is not an option at the moment.
"The unemployment rate is continuing to trend upwards in an underlying sense. The Reserve Bank keeps saying that growth in the year ahead is likely to be below trend and historically the Reserve Bank has never begun to lift interest rates until it's been clear that the unemployment rate has peaked and begun to fall."
Possible ways of protecting the financial system from becoming unstable include insisting on higher minimum deposits for property investors, tighter loan to valuation ratios for mortgages, or forcing banks to set aside a bigger cash buffer.
But federal MPs on both sides of politics are concerned about the RBA's intentions and what they say is a lack of transparency.
Federal Affordable Housing Committee chair, Labor Senator Sam Dastyari, has told the ABC that's why the committee has unanimously voted for the central bank to appear before it.
"The problem you have with the Reserve Bank is they don't need parliamentary approval, they don't need political approval, which means often they don't actually try and explain what they're trying to do. The Reserve Bank needs to come clean and explain what are the consequences of all of this? What is going to be the unintended consequences? When you look at these kinds of tools there will be consequence in decisions they make."
Nationals MP Matthew Canavan has told the ABC one of the unintended consequences of placing limits on lending could be locking first home buyers out of the market, as has been seen in New Zealand.
"People that are struggling to get a home loan right now are going to be the ones most affected by any tightening of lending standards. Typically that will be first home buyers. It won't typically be investors. Investors tend to normally have more of an equity buffer than those first home buyers, especially. So we need to be very careful. About $200 billion a year is lend. Parliamentary oversight is necessary and needed in this area."
Senator Canavan says one way to make housing more affordable would be to give young people access to their superannuation in order to buy their own home.
But chief economist at Bank of America-Merrill Lynch Australia, Saul Eslake, has another solution which he says would target investors without hurting owner-occupiers.
"The removal of negative gearing provisions for investments entered into after a certain date. That would undeniably target the source of the problem as the Reserve Bank identifies it which is borrowing by people for investment properties, without doing any damage to the rest of the economy."
An RBA representative is expected to front the Senate Economics Committee on Thursday.
Share
