Australia’s economic recovery is inching forward, but a key reform designed to give it a shot in the arm – Treasurer Josh Frydenberg’s legislation to overhaul responsible lending obligations and free up access to credit in order to get more money flowing – is facing threats from overseas and at home.
In what could be the biggest signal to lawmakers here that they need to tread very carefully, New Zealand’s central bank has instigated strict lending criteria to curb a runaway housing market that saw median prices jump a whopping 20 per cent in 2020.
Driven by concerns that a looming price correction could wreak havoc across the economy and fears that NZ borrowers may be overexposed, NZ’s central banker Geoff Bascand articulated his thoughts around the unsustainable growth.
“We are now concerned about the risk a sharp correction in the housing market poses for financial stability (of New Zealand),” said Mr Bascand in a Business Insider report.
“There is evidence of a speculative dynamic emerging with many buyers becoming highly leveraged,” he added.
Investors must now provide a minimum 40 per cent deposit when taking out a mortgage, and only 20 per cent of new loans can go to borrowers who have less than 20 per cent deposit, impacting first home buyers significantly.
RBA reacts
With Australia’s record low interest and strong price recovery through the second half of 2020, it could be of concern that a similar situation might unfold here.
However, Australian RBA Governor Philip Lowe dismissed this, saying there were no signs of an Australian housing bubble on the horizon.
He did concede, however, that the RBA, in conjunction with APRA (the prudential regulator), was directing a laser beam focus on property prices and the associated debt levels that accompany those asset purchases – watching for signs that buyers are borrowing beyond their means.In a worrying development for Frydenberg’s reforms, the Guardian recently reported on some internal RBA analysis, secured through Freedom of Information, that indicated, “RBA staff fear that ‘looser lending standards’ and ‘optimistic assessments of risk’ combined with low interest rates and soaring house prices, could entice Australians to take on too much debt”.
If these internal voices gain traction with decision-makers, we could soon see public opposition to Frydenberg’s legislative reforms.
The property market’s performance in the immediate short term will be a key factor in those internal debates.
Australian property market – boom, bust or steady as she goes?
While the property market has performed surprisingly well, avoiding the drastic 40 per cent plunge some pundits predicted in early 2020, it is still facing some hurdles that are keeping a handbrake on growth.
December data from the ABS revealed unemployment and, more critically for the property market, underemployment, remain high.
Unemployment in December 2020 was 6.6 per cent, or around 912,000 unemployed Australians
