Curbs On Lending By Regulators May Be Preferred Response to Housing Market

scott morrison

Ahead of the upcoming May Budget and in a major address delivered in Melbourne on Monday, Treasurer Scott Morrison may have given his strongest inclination as to the Government’s likely response to the housing debate.

Sighting that “residential property investment is more geared to capital gain than yield”, the Treasurer warned of risks to the broader economy should there be any downturn in the housing market and of risks of higher rents which would only impact affordability if returns from property were less attractive.

“If mum and dad investors were not part of our private rental market there would be fewer rental properties available, meaning higher rents, further crowding out of those on lower incomes and even greater pressure on already over-stressed community and social housing resources.”

For all intensive purposes it appears the Government has ruled out changes to negative gearing for investment properties and erred away from potential changes to the capital gains tax regime.

A crackdown on bank lending through tougher macro-prudential policies however, appears to be the preferred approach to tackling the housing markets.

In a radio interview with ABC on Monday, Mr Morrison argued the curbs on lending announced by regulators, was a better way of addressing the overheated property markets in Melbourne and Sydney as well as addressing high household debt levels.

“What I have made really clear is the best way to deal with the investor side of this debate is what the regulators have been doing.”

“Just the other week, APRA, the banking regulator, put in new controls on interest-only lending. Now, interest-only lending is around 40 per cent of the book of flow coming onto new mortgages.

“That is not a good thing in terms of managing overall household debt and that is why the regulator, with strong support from the government, has acted on interest-only loans.

“Now, I think we should see how that works. Now, that is the scalpel. That is the thing that you can act on in this area without running the risk of causing a housing shock. If you have a housing shock in our economy then that does threaten jobs, that does threaten wages.

“The regulators are the preferred way of dealing with this issue.”

Tackling affordability and the growing difficulty for first home buyers to enter the property market, the Treasurer along with fellow Liberal members including former Prime Minister Tony Abbott appear to have endorsed a proposal that would allow first home buyers to access their retirement savings to pay for a home deposit.

The controversial idea involving changes to superannuation has been met with mixed emotions.

Shadow treasurer Chris Bowen said it could undermine superannuation and further increase property prices.

“It takes a very special plan to actually drive up housing prices by increasing demand as well as undermining Australia’s retirement system.”

Meanwhile, in addressing issues concerning housing supply, the Treasurer highlighted two possible solutions. The first was addressing changes to encourage older Australians to downsize from their family homes, whilst the second was concerned with applying a vacancy tax on foreign investors.

An interesting an much talked about debate, it will be interesting to see what plays out in the coming weeks leading up to the May budget.

Watch this space.

Source: afr.com, abc.net.au, theage.com.au