The two regulators – RBA and APRA CANNOT regulate supply of housing.
All they can do is influence availability and cost of credit (the former via interest rates, the latter via entity-level capital requirements).
Accordingly, all RBA and APRA can do is assess whether borrowers are:
a) taking out loans on prudent terms b) have sufficient capacity to repay c) financial system remains sound
If the price growth (and increase in price as a multiple of household income) is based on a change in consumer preferences, say because people just VALUE housing relatively more than in the past, then who are the RBA and APRA to stand in the way? No rules are being broken.
Ultimately, if RBA and APRA are satisfied the financial system, individual entities, and general conduct of lending within the system remains sound, then their hands are (largely) tied.
It is the Federal Government that sets policy and should be thinking about availability of housing at reasonable cost/quality for their citizens. They should be addressing supply issues ASAP.
NB: I am playing devil’s advocate a little here. I do actually see a role for the regulators as ‘citizens of good conscience’ regardless of what their specific mandates may be.
I’ll also add:
1) Yes, I think house prices are at ridiculous levels. 2) I think bank lending has *mostly* remained prudent (I believe debt tends to be held by wealthier households so don’t expect defaults to necessarily skyrocket) 3) I still believe prices can fall in the absence of high levels of defaults. It simply requires a reset/adjustment of expectations.
You raise many good points.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
The Australian Prudential Regulation Authority says imposing lending restrictions on banks is not high on its agenda although it remains an option.
Chairman of APRA John Laker said the authority would engage directly with banks ahead of institute New Zealand style macro-prudential controls.
“We have the same tools in our armoury as other supervisors have used,” Laker told the Financial Services Institute of Australasia conference, attended by The Australian Financial Review.
“We’ve used those tools in the past and would be willing to use them, but there are a range of other actions prudential regulators can take before being forced to take macro-prudential [measures] and those tools are engaging across the table.”
His comments come after a plea from the Reserve Bank of Australia for banks to maintain lending standards and calls by the International Monetary Fund to use macro-prudential policies to restrict risky bank lending.
New Zealand recently implemented policies to ensure just 10% of total mortgages are worth 80% or more of the value of a residential property.
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