Australia’s regulators are preparing to intervene in the property market as house prices explode and New Zealand mounts its own crackdown

Australia’s property intervention may be in the works. (Jeff Greenberg, Universal Images Group via Getty Images)
  • Australian regulators have revealed they are mulling a possible lending intervention, as household debt mounts.
  • As property prices soar, the RBA has raised major concerns, indicating it is considering what steps it may take next if credit growth doesn’t slow.
  • It follows similar moves overseas after New Zealand’s central bank implemented lending controls of its own earlier this year.
  • Visit Business Insider Australia’s homepage for more stories.

The risks posed by surging Australian house prices and household debt have now grown too large to ignore, and regulators are preparing to stage a possible intervention.

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, and revealed the central bank was actively weighing up what steps it might take next.

“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. Nor is it alone in recognising the pace of lending may be unsustainable.

Separately, 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.

The Council, which counts ASIC, APRA, the RBA and Treasury as its only members, covers the exact entities that would oversee a tightening of the lending market.

It maintained lending standards “remain sound”, but acknowledged that regulators were taking a closer look and putting the big banks on notice about “proactively managing risks within their housing loan portfolios”.

“[Council members] discussed the risks that could build if growth in household borrowing substantially outpaced that in income, as well as potential policy options to address these risks,” it wrote.

New Zealand has already set a template

Since October, property markets have bounced, accelerating in 2021. Month on month, 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 mark for the first time.

It marks Australia as an exemplar of a trend being witnessed across developed markets, as quantitative easing and large scale stimulus pump up asset prices, especially home values.

It has been New Zealand though that has blazed a trail in trying to wrestle back control. Earlier this year, it became the first major nation to intercede, announcing 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.

While it’s unclear how Australian regulators might step into the market, it is clear any intervention would see lending standards lifted with a particular focus on investors.

A property bubble Australia can’t afford

Whether or not the property market is already in a bubble is a matter of opinion, but valued at $8.1 trillion and responsible for the majority of the nation’s wealth, risks within the property sector need to be managed carefully.

This week calls were made for a Royal Commission to tackle what experts consider to be a runaway market.

Government policies meanwhile marketed as affordability measures have been criticised by economists as exactly the policies help inflate demand and drive more buyers into the market, posing further risks.

But the regulators have been watching carefully, and it appears like they’re almost ready to move off the sidelines to get involved.