The actions of Australia’s major home loan lenders recently to increase interest rates on investor loans, require apartment developers to have more skin in the game and investors a bigger deposit are all responses to APRA’s clampdown on lending practices.
But they are also a reflection that Australian banks’ own assessments of the risk in the housing market is such that any loss of business at this point in the cycle is a necessary part of protecting themselves from future losses as the cycle turns down.
That means news that the Commonwealth Bank is now clamping down on loans to developers of greenfield sites for new developments is hardly surprising.
Fairfax reports this morning that the CBA will restrict finance to new developments until later in the cycle of planning and construction once “the land is ready for development and all preliminary work such as roads has been completed”.
It’s consistent with the move last week from the bank to lower the amount of finance it will lend to brownfield developers, apartment blocks and other multi-unit developments, from 80% to 75%.
No doubt the CBA and other banks are worried about new buyers, who are often the most leveraged and have the smallest deposits, finding themselves underwater if prices fall. Equally, with so much housing finance going to investors, they are now duty bound under new APRA restrictions to slow the flow to this sector.
Couched in risk management terms, both moves will please APRA and protect the banks from future losses.
But the moves also serve the CBA’s and other banks’ ends because of the potential supply restrictions they could create. That’s because one of the factors which can help bring down prices and make overall housing more affordable is increased supply. By restricting supply, or at least slowing it down, the negative impact of fresh supply into the current frothy housing market should slow the decline in prices.
David Payes, president of the Urban Development Institute of Australia, told Fairfax that:
“If it’s adopted by all banks, it will make it more difficult for all developers to fund construction of land for first home buyers and second home buyers. We need to supply land to keep housing at affordable prices.”
The Housing Industry Association chief economist echoed Payes’ concerns.
“There is no justification for cutting off the credit tap for new residential development. It would be very concerning at this point in time if it became more difficult for people to get into a new home, which is the end issue here,” he said.
Indeed it would. That’s not good for people trying to buy.
But it might be good for house prices.
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