Here's how APRA's crackdown on investor lending has affected Australian house prices

(Jordon Kelly / Icon Sportswire via Getty Images)
  • Since 2014, Australia’s bank regulator has introduced a series of restrictions on mortgage lending to investors.
  • In that time, the RBA says house price growth in high-investor regions has lagged low-investor regions by around 7%.
  • The central bank says the measures have helped reduce financial stability risks.

House prices in Australia’s major east coast markets are still falling.

And market analysts have been almost unanimous in their assessment that tighter bank lending standards have been cited as one of the major catalysts for the current downturn.

Since 2014, the banking regulator, APRA, has introduced a series of lending restrictions to try and ensure the stability of the housing market.

The measures have largely been focused on the investor segment of the market. There was the 10% cap on new investor loans at the end of 2014 (now removed), and restrictions in March 2017 which limited interest-only lending to 30% of all new loans.

As part of its Financial Stability Review released today, the RBA crunched some numbers to calculate how those measures have influenced house prices.

Because of the focus on investor loans, the RBA differentiated for regions with a high percentage of housing investors.

The data revealed a particularly sharp divergence between high and low-investor regions since the interest-only lending limits early last year:

Reserve Bank of Australia

However, “to better isolate the impact of the policy measure, it is important to control for as many other factors influencing regional housing prices as possible”, the RBA said.

The bank used statistical analysis to adjust for additional differences by region including population density, the number of residential building approvals, and moves in house prices prior to the first APRA restrictions.

“This exercise suggests that the policy effect accounts for around two-thirds of the 7 percentage point difference in average cumulative housing price growth between high and low investor regions from December 2014 to mid 2018,” the RBA said.

Reserve Bank of Australia

So as the restrictions have seen credit growth to housing investors slow to almost decade-lows, it appears they have also limited price growth for that side of the market as well.

Overall, the RBA said the policy measures have provided a net benefit by reducing financial stability risks in the housing market in an orderly manner.

“However, the overall stock of household debt is high relative to income, suggesting that the associated risks remain.”

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