The banking regulator has downplayed the use of so-called macro-prudential tools to cool the housing market, signalling a potential reprieve for the banks as regulators prefer to try to talk down price growth.
In opening remarks to the House of Representatives Standing Committee on Economics in Canberra today, the chairman of the Australian Prudential Regulation Authority, Wayne Byres, reiterated it was unlikely to try and cool the market by installing caps on the amount banks can lend to borrowers with small deposits, as done in New Zealand.
He added regulators would not initially follow the Bank of England in capping banks’ lending based on large loans relative to incomes.
“We are still working through our options but, as I have said elsewhere, those sorts of tools are unlikely to be the ones we reach for first,” he said.
When questioned, Mr Byres added he preferred changing the banks’ capital requirements, including potentially targeted moves on specific lenders if concerned about their risk taking.
But he added regulators would not rush to install any measures, just to adhere to comments by the Reserve Bank that it was likely before the end of the year due to concerns about the rise in lending investors and interest-only loans.
Mr Byres, who took over from John Laker in July, added it was not “time critical” and more important to get the decision right.
It signals a potential reprieve for the banks, which are facing a wave of regulatory uncertainty including the Murray financial system inquiry that may recommend higher capital requirements.
Yesterday, Bank of Queensland chairman Roger Davis rubbished talk of a nationwide property ‘bubble”, warning that measures to cool the market would harm parts of the economy not experiencing the same double-digit annual house price growth as Sydney.
“When coupled with low system growth, these trends — despite local abnormalities — suggest there is not a national housing bubble and certainly not in any of the markets where we participate in a major way,” he said.
But speculation that regulators will step in to try and cool the market has risen since the RBA’s comments in recent months, with Standard & Poor’s yesterday saying it was a matter of “when” it would happen, not “if”.
“Standard & Poor’s considers that a sustained and strong increase in property prices adds to the imbalances in the economy, in that it increases the risk of a rapid downturn in property prices, which could eventually destabilise the financial system and the broader economy,” the ratings agency said.
“We believe Australian regulators will expand the use of macro-prudential measures to address the increased risk associated with strong growth in house prices, particularly with interest rates expected to remain low.
“We believe that strong property price growth is typically an indicator of increased risk, and the surrounding fundamentals of soft employment and anaemic real wage growth heighten the risk.”
This article was first published on The Australian Business Review.