Implementing home loan limits to tame Australia’s housing market is worth trying, says New Zealand’s finance minister.
In late 2013, the Reserve Bank of New Zealand implemented macro-prudential policies in the form of LVR caps to cool its heated property market in a low interest rate environment. The LVR caps restricted the number of loans over 80% of the value of the house.
In an interview
with the ABC, English admitted that macro-prudential polices only made a difference at the “margin”, however, he said that Australia should not rule them out.
“I wouldn't say don't bother because I think the market needs to see that an institution like - a reputable institution like the RBA
would be taking the issue seriously that a fast-rising housing market is not an unmitigated good,” he told ABC’s The Business program.
“It's a potential risk to the macro economy and also for householders who pay too much. So, I think it's - in our experience, it's worthwhile, we've set up a framework that enables the RBNZ to - to exercise - use those tools and Australia'll make its own decisions.”
While macro-prudential policies are successful in sending a message, English says it is very much a supply story in New Zealand.
“We have to concentrate on growing the supply as fast as we can and that's a largely an issue around regulatory constraint and also about the views of a community about whether they want to grow, whether they want denser housing. But again, we're making progress there 'cause I think everyone realises this market's out of balance and they want to see action on it,” he told the ABC.
This supply side sentiment is also echoed across many of Australia’s property market commentators. After the latest Adelaide Bank/REIA Housing Affordability Report
for the December quarter revealed housing affordability dropped nationally, Adelaide Bank General Manager Damien Percy said stimulating supply is the most critical factor in addressing affordability.
“Construction of new residential dwellings may be at the highest levels for some time, which is encouraging and certainly helping to get our economy moving again,” he said, “but unless a more determined effort is made on the part of the States and Commonwealth to work more actively with local government, developers and financiers – as the economy improves and population continues to grow at current rates, there will continue to be supply-side issues that will ultimately mean further upward pressure on house prices.”
According to HSBC
chief economist Paul Bloxham, macro-prudential policies had little to do with containing New Zealand’s housing supply, so Australia should think before following suit.
“Those tools were effective for a very short period of time, but then the RBNZ followed up with lifting interest rates,” he told the Australian Mortgage Innovation Summit
earlier this year.
“We had the RBNZ lift interest rates by 100bps last year between March and July. It was really probably that lift in interest rates that was the main thing that kept the housing market contained in the end.”