Australian regulators are under pressure from two senior economists to take a proactive approach in curbing lending amid growing concerns over a potential housing bubble, according to The Australian Financial Review.
The warnings, from former Reserve Bank of Australia (RBA) board member Bob Gregory and Melbourne University professor Ross Garnault came as the latest RBA meeting minutes revealed concerns within the central bank's board over the property sector.
“If you are worried about the risk of a bubble in the housing market, the simple and logical things to do is remove the privileged risk-weighting of housing in bank capital adequacy ratios,” Mr Garnaut told the AFR.
“That puts it on them to be careful as capital costs them more.”
Mr Gregory said the current property landscape was reminiscent of the late 1980s when rising asset prices forced the RBA to raise interest rates to fresh record highs.
He added that a housing bubble “just seems to be inevitable”.
“The only question is when,” he told the AFR.
“Everyone is hoping that the economy will recover soon enough and quick enough that we can reverse the stance of [monetary] policy.”
Read Alan Kohler's 'A housing bubble? You bewdy!' here.
Read Robert Gottliebsen's 'How the cork was popped on housing demand' here.
Read Stephen Koukoulas' 'House price bull heaven' here.
Banks warn on lending limits
Banks say lending restrictions to address concerns record low interest rates could cause a property price bubble would hurt first home buyers, The Australian Financial Review reports.
According to the newspaper, Australian Bankers' Association chief executive Steven Münchenberg said there was no sign banks were relaxing lending standards, and New Zealand-style lending limits would affect first home buyers.
The Reserve Bank of Australia's September meeting minutes released yesterday said members agreed it was important for banks to maintain prudent lending standards in an environment of low interest rates and slow credit growth.