APRA could put 'speed limit' on housing market

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The Australian Prudential Regulation Authority has a range of macroprudential tools at its disposal which will be used if necessary, the regulator said in its submission to the Murray Inquiry.

“APRA’s legal powers to respond to situations of financial stress have been materially strengthened since the [GFC] began. Nonetheless, there are some areas where these powers could be further strengthened to align them more closely with international standards and best practice and enable APRA to respond more effectively to financial distress,” it said.

APRA said a “more heightened response” could involve the use of macroprudential tools similar to those used recently in other jurisdictions, such as 'speed limits' on high loan-to-valuation lending, floors on housing loan risk-weights and early implementation of the Basel III countercyclical capital buffer.

APRA is not the only body considering macroprudential measures – with home prices surging while other parts of the economy remain passive, the Reserve Bank of Australia is closely watching its counterpart over the ditch, which imposed limits on home lending on deposits of less than 20% last October.

The Reserve Bank of New Zealand recently reported its mortgage lending limits appear to be slowing down home price growth.

It said total low deposit lending has fallen to 7.8%, even including loans that are exempt from the cap, leading to a 13% drop in home sales over the five months to February.

The RBNZ also said home price growth has slowed to 8.2% over the year to February, down from 9.8% over the year to September 2013.

The bank said its modelling suggests home price inflation would likely have been 2.5 percentage points higher over the year to February if no macroprudential action had been taken.

With RP Data - Rismark's Home Value Index showing in March the biggest monthly rise in records going back 18 years, perhaps macroprudential tools are not far off the horizon.

Australia's capital city home prices surged 2.3% in March, and up 10.6% over the past year, with double digit gains in Sydney and Melbourne leading the rise.

However, NSW Treasurer Mike Baird told The Australian last week that putting curbs on mortgage lending to cool Australia’s rising house prices would be premature and risk severe knock-on effects that could cripple Australia’s economic recovery.

“You need to be convinced that there is genuine market failure before there is a regulatory response.”

He said current property market fundamentals were strong, but the pace of house-price growth was unsustainable in the long term.
 
 
  • Incognito on 7/04/2014 11:01:42 AM

    Limiting LVR's will keep the bottom end out allowing the already-rich to pick up investment housing cheaper.

    Should instead wind back negative gearing over a 10 year window. Gone forever.

    Many investors would still buy housing even without gifting them with tax concessions.

  • Brisbane Broker on 7/04/2014 10:04:03 AM

    This is capitalisam not socilisam or comunisam. Economy is rasing prices and cost of living rising something go wrong and companies that are on wrong sidy of road pays a price and world is still spinning.

    I have a questions for APPA; how about you out a limit on banks increasing interest rate without any reason? ooo no actually cost of funding, what a joke.

  • Harry Myers on 7/04/2014 9:59:46 AM

    When will they just to keep out of the housing market. Every time a regulatory authority fiddles with something the law of unintended consequences kicks in and away we go again. the housing market is too vast and complex for self self serving bureaucracy's to control so best they just leave things alone. Unless they regulate how much I can sell my property for their actions are pointless, discriminatory and expensive.

  • Bottom Line on 7/04/2014 9:45:53 AM

    Mike Baird is right.

    Again, growth is low in all areas of the country except Melbourne & Sydney. So a blanket effort to control 2 cities, will cripple economies elsewhere around the country.

    Because our Financial System worked in 2007, everyone wants to make a change to it, so they can lay claim to part of it's success.

    I'd suggest these so called experts "leave their ego's at the door" when making decisions that affect the whole of our country (but then that's unlikely).

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