'Let's be clear about what this is not about': RBA sets record straight on regulation

by Julia Corderoy20 Nov 2014
The Reserve Bank governor Glenn Stevens has set the record straight on the bank’s views about the housing market. In a speech to the Committee for Economic Development of Australia (CEDA), he addressed the surge in investor demand, saying he does not see it as “an immediate threat to financial stability”.

According to the latest lending aggregates released by the RBA, lending to housing investors grew 9.5% in the 12 months to September, compared to 5.5% for owner occupiers. This significant upswing in property investment triggered the central bank to be cautious of an “unbalance” in the market.

This lead to some backlash from the industry as the Reserve Bank entered discussions with APRA over possible macro-prudential policy to curtail property investment without raising rates.

Michael Russell, CEO of Mortgage Choice, said that any regulatory action to curb property investment is “fruitless”, as the government should be focussing on aiding supply rather than decreasing demand. Aussie Home Loans chief John Symond agrees, saying that enforcing tougher lending criteria is “ridiculous” and may have “unintended consequences” that will hurt first homebuyers and other sectors playing the housing market.

However, Stevens told CEDA that the Reserve Bank doesn’t see the level of investment as a “terrible problem” but it is “surely imprudent” not to question the assumption that it is entirely benign either. 

While the bank acknowledges that the upswing in investment is financing additions to the stock of dwellings, Stevens says that it is not unreasonable to question whether some people might be starting to get just a “little overexcited” – especially as house prices have risen considerably in the two largest cities and lending growth has reached double digit rates.

“Let's be clear what this is not about. It is not an attempt to restrain construction activity. On the contrary, it is an attempt to stretch out the upswing. Nor is it a return to widespread attempts to restrict lending via direct controls. That era, that some of us remember all too well, was one in which the price of credit was simply too low and credit growth too high all round. We don't have that problem at present,” he said in his address to CEDA.

But with interest rates to remain at historic lows for some time while the economy still has spare capacity, Stevens says discussions over the housing market aren’t over. 

“In such circumstances, monetary policy should be accommodative and, on present indications, is likely to be that way for some time yet. But for accommodative monetary policy to support the economy most effectively overall, it's helpful if pockets of potential over-exuberance don't get too carried away.”