REVEALED: The RBA's internal concerns about the property market

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The RBA has today released details, under freedom of information, showing exactly why staffers are concerned about investor lending in the home loan market.

They have two primary concerns: Macroeconomic and Concentration risks. Here’s what Kylie Stewart and Vanessa Rayner wrote about these risks in a document marked “Highly Restricted” on September 26 2014.

The emphasis is added.

  • Macroeconomic:
    Extra speculative demand can amplify the property price cycle and increase the potential for prices to fall later. Such a fall would affect household spending and wealth. This effect is likely to be spread across a broader range of households than the investors that contributed to the heightened activity.
    Concentration risk:

  • Lending has been concentrated in Sydney and Melbourne, creating a concentrated exposure in these cities. The risk could come from a state-based economic shock, or if the speculative upswing in demand brings forth an increase in construction on a scale that leads to a future overhang of supply.
  • In Sydney, the risk of oversupply appears limited because of the pick-up in construction follows a period of limited new supply and it has been spread geographically and by dwelling type. While the unemployment rate has picked up a little over the past 18 months, the overall economic environment in NSW is in a fairly good state.
  • In Melbourne, there has been a greater geographic concentration of higher-density construction in inner-city areas. Some developments have a concentration of smaller-sized apartments that may only appeal to some renters, or purchasers in the secondary market. Economic conditions are not as favourable in Victoria and the unemployment rate is 6.8%.

It’s worth noting that these concerns were expressed in September, before the recent acceleration in investor demand for debt, and it’s likely, given RBA statements since by the Governor and others, that concerns at the RBA will have increased since. Indeed, it’s clear in other documents released today that the RBA is, was, or has been contemplating hard lending limits for Australian banks.

So, after today’s lending data showed investor lending for established properties has jumped 104% in four years the RBA and APRA are likely planning something harder than rhetoric to rein in investment lending.

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