- Australian regulators are mulling an intervention into the housing market.
- Property prices are soaring as much as $1,000 (AUD) per day.
- New Zealand’s central bank implemented lending controls of its own earlier this year.
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Regulators are preparing to stage a possible intervention into the risks posed by surging Australian house prices and household debt.
Month on month in 2021, lending increased to record-breaking levels, with $1 billion now flowing into the property sector every single day. The enormous growth has been enough to push the average New South Wales home to break the $1 million (AUD) mark for the first time, and some homebuyers have witnessed prices shooting up $1,000 per day.
Speaking on Thursday, the Reserve Bank of Australia (RBA) expressed alarm at the pace of new lending as buyers try desperately to keep up with the hot market.
“I don’t think it’s in the country’s interests to have an extended period where credit growth is running way ahead of growth in our incomes, particularly given the high levels of debt,” Governor Philip Lowe said as part of a public address on Thursday.
“We’re not at the point where we’re actively considering implementing any initiatives in this area, but we’re doing the preparation for what might happen, what we might do if credit growth was accelerating.”
It’s the strongest indication yet the RBA has given it would intercede if pressed by Australia’s seemingly insatiable appetite for property.
The Council of Financial Regulators (CFR) released its quarterly statement on the same day, raising concern there had been “signs of some increased risk taking” in a low interest rate environment.
New Zealand has already set a template
Earlier this year, New Zealand announced a major crackdown after prices rose 20% nationally during 2020.
This week the Ardern government agreed “in principle” to apply debt-to-income (DTI) limits, further restricting the amount Kiwis can borrow. While the government wants to remove investors from the market and curtail any impact to first homebuyers, its central bank described the limits as likely “the most effective additional tool” to tackle the market, on top of existing restrictions which include up to 40% deposits.
Any intervention would likely see lending standards lifted with a particular focus on investors.
A property bubble Australia can’t afford
The Australian property market is valued at $8.1 trillion (AUD) and responsible for the majority of the nation’s wealth.
This week calls were made for a Royal Commission to tackle what experts consider to be a runaway market. Meanwhile, government policies marketed as affordability measures have been criticized by economists as exactly the policies help inflate demand and drive more buyers into the market, posing further risks.