Lenders have stepped up their opposition to threatened regulatory moves to curb booming housing prices as Reserve Bank of Australia governor Glenn Stevens defended his backflip over the use of so-called macro-prudential tools, saying there was little downside from trying them in the short term.
Investors joined the criticism of measures that could limit the flow of funds to the housing market, warning that it risked upsetting the broader economy as it moves away from mining investment and high commodity prices.
Moves to restrict foreign buyers are also gaining favour amid concerns they are flouting Foreign Investment Review Board restrictions and signs that moves by other countries such as higher stamp duty on nonresident purchases have succeeded.
Australian Bankers Association chief executive Steve Munchenberg said blunt instruments such as macro-prudential controls risked creating unintended consequences, including denying some home buyers an opportunity to enter the market.
He said there was no sign that banks had been pumping money into parts of the market such as property investors with looser lending standards or lower rates.
“We are meeting demand. If people don’t want us to meet that demand there is a case for macro-prudential regulation but if you are not meeting demand there are people that are missing out on getting into the property market,’’ Mr Munchenberg said.
In its semi-annual Financial Stability Review the RBA this week said the mortgage market was becoming “unbalanced’’ by the rapid growth of lending to property investors and said it was in discussion with other financial regulators about steps to slow the flow of funds.
“Direct risks to financial institutions would increase if these high rates of lending growth persist, or increase further,’’ the RBA said.
The threat of more regulation has come at a delicate time for banks with shares down heavily this month and David Murray’s Financial System Inquiry due to report soon on measures that could force the bank to raise tens of billions of dollars in additional capital.
Macroprudential tools include limits on the loan to valuation ratio at which banks can lend to home buyers and high capital buffers for banks to effectively increase the cost to banks of lending.
But restrictions on mortgage LVRs in New Zealand have attracted criticism from banks, who said they forced established home buyers to instead target cheaper housing, pushing up prices in the market most commonly used by first home buyers.
The threat of further regulation has been greeted with a mixture of scepticism and alarm amid suggestions the central bank was just using the threat of regulation to “jawbone’’ the banks into tightening their lending criteria.
“Wether you need to regulate because the property market is hot to trot is a matter for debate,’’ said Peter Nash, the chairman of big four accounting firm KPMG
“I think in this case it is interesting that it seems to be the intent (of the RBA) to talk about having regulation in the hope that that will help curb the excesses, as opposed to actually having regulation’’
Mr Stevens, who once called macro-prudential tools a “fad”, defended his backflip on using home-lending restrictions to cool an overheated property market, saying weapons other than monetary policy should be considered if they were likely to have some impact.
“I’m not naive enough to think that these (macroprudential tools) are any kind of panacea or permanent solution,” the RBA chief told a conference in Melbourne.
“That doesn’t mean you shouldn’t use them if at the margins they might be helpful.”
However, official interest rates, which have been at a record low of 2.5 per cent to try and engineer a transition in growth to the non-resources sector, have inspired a housing boom in the key markets of Sydney and Melbourne.
Investor finance has been surging, with the RBA governor pointing to double-digit growth in interest-only lending, which currently accounts for about half of new home-loan approvals.
“I think it’s perfectly sound and sensible to ask ourselves whether there are tools that might at least lean on that a bit,” he said.
“I don’t see much downside; the worst that could happen is that it doesn’t much effect.
“If it has some effect and helps square in some way all the conflicting things going on, it’s worth a try.”
But Robert Penaloza, head of Australian equities at Aberdeen Asset Management, which invests in the banks, said the moves did pose risks to the economy at a time when it was soft and attempting to change gears from mining investment and commodity prices towards housing and consumption.
“ I’d be a bit cautious because I think we’re still trying to transition,” he said.
“I just think we need to be a bit more discerning where we apply the measures and maybe stimulate where we need to, maybe give more tax breaks to first home buyers.”
He suggested exploring measures in Asia such as slugging nonresidents with higher stamp duty charges as Singapore did.
Restrictions on foreign buyers may already be coming, with Liberal MP Kelly O’Dwyer, chairwoman of a parliamentary economics committee inquiry into foreign investment in real estate, calling last week for tougher penalties on foreign buyers caught buying established dwellings.
Michael Russell, the chief of Mortgage Choice, one of the largest mortgage brokers, said further regulation of lending would be an “overreaction’’.
“Yes volumes are up but there’s no dropping standards,” said Mr Russell, a former banker.
“I’ve been in home lending for 30 years and the number one principle has always been that if a borrower can comfortably demonstrate good employment and serviceability you don’t have too many problems.
Lindsay Partridge, the managing director of building materials group Brickworks, which is looking forward to its best trading year in a decade, said regulators should focus on measures to increase supply as a way of cooling prices.
“We have had the planning restrictions, but we had the Reserve Bank holding the interest rates higher because they were worried about the mining boom.
“Now they really need to keep the interest rates down to keep the currency under control, and we really need to catch up with ten years of work that didn’t happen.”
This article first appeared in The Australian.