Last month saw bumper returns in the housing market, prompting some to ask whether the government will intervene to cool things down as has recently happened in NZ
But those who are expecting a clamp-down don’t understand how lending works nor how a rising property market is key to the Reserve Bank’s plans for our economy’s growth.
Sydney property recently experienced 3.7 per cent growth – the last time it hit more than 3 per cent monthly growth was in August 1988. And all capital cities also experienced growth.
Many economists predict price growth of around 15 per cent for the period up to the end of 2022, which has prompted angst regarding housing affordability with many expecting the banking regulator (APRA) to step in to limit how much can be lent.
But, at a recent parliamentary enquiry, the APRA Chairman emphasised that it was the regulator of the banks not property. He told Canberra “It’s not our job to solve house prices and it’s not our job to solve house pricing affordability. The extent to which there is dynamic emerging of increased risk taking by the community … at this stage it’s not evident”
Most brokers will tell you that the banks are still taking a prudent approach to lending: debt-to-income ratios and loan-value-ratios still remain low. In truth, the reason why Australians can borrow more is because interest rates remain low – and if prices continue to rise, many wont be able to borrow enough. In itself, this will act as a brake on the property market.
But higher house prices are part of a recovery scenario for the Reserve Bank as it aims to lift inflation back to its 2 to 3 per cent target range.
And the wealth effect is key to Australia’s growth. The wealthier we feel, the more likely we are to go and spend on other products and services.
As such the Reserve Bank of Australia has a firm commitment to a 0.1 per cent cash rate until at least 2024.
The Reserve Bank of New Zealand did recently announce changes so that borrowers must now have a 30 per cent deposit. And, by May, investors can only borrow up to 60 per cent of a property’s value.
But the NZ property market is more dominated by investor than ours
Expecting the government to cool house prices? Don’t hold your breath
Graeme Salt is a leader of The Futurus Group, whose brands primarily comprise Origin Finance, Chan & Naylor Finance as well as Walker & Miller Training. For a no-obligations consultation, please contact him on 1300 30 67 67