LVR caps could have 'perverse outcomes' on property market, says property lobby

by Julia Corderoy26 Sep 2014
Property lobby, the Property Council of Australia has warned the Reserve Bank to be cautious about introducing macro-prudential reforms in response to the surging property market.

This comes on the heels of the International Monetary Fund’s managing director, Christine Lagarde telling the ABC that the Reserve Bank can put a ceiling on rising house prices without increasing interest rates by enforcing limits on lending.

"We believe that the central banks have now the macro-prudential tools to deal with such developments, and some of them are using them, some of them are increasing or varying the loan-to-income or loan-to-value ratios, for instance, in the housing market, which is one where we have seen clear volatility lately," she told the ABC.

However, Nick Proud, executive director of the Residential Development Council said that such reforms could cause perverse outcomes.

“Arbitrarily increasing lending measures runs the risk of shutting more first home owners out of the property market. Macro-prudential controls should only be introduced where there is systemic risk. The RBA needs to be careful if changing borrowing practices applied to fix presumed problems in pricing in some localised mainland centres which may have an adverse impact on cities such as Hobart, Adelaide, Canberra and regional Australia,” he said.

Proud said that housing lending in Australia is already managed prudently by the banking sector, and that public concern about rising house prices is at odds with the facts.

“With the public debate around housing price increases being somewhat disjointed from the facts as presented by the RBA, there is an emerging need for better national metrics about housing activity which is one of the nation’s most critical industries. There is a need for a repository of national residential development metrics data to be at hand to benefit long term national fiscal and monetary policy decisions that relate to all housing users including renters, first home owners, owner occupiers, seniors, and investors both domestic and foreign,” he said.