There's mounting market chatter that Australian regulators are about to step in on property prices

Photo: William West/ AFP/ Getty Images.

Investors are back in force and driving up the housing market, prompting calls for regulatory action to curb the speculation.

Deutsche Bank, CoreLogic and economists at Commonwealth Bank of Australia say soaring home prices and investor loan demand outpacing that of owner-occupiers may justify some regulatory changes.

The debate over housing affordability has intensified in recent months as Sydney and Melbourne home prices have run up non-stop for almost five years now. That has pushed up household debt to unprecedented levels, adding to regulator concerns and political pressure for governments.

Growth in investor loans has outrun owner-occupier lending for five consecutive months. That has led Deutsche Bank analysts Andrew Triggs and Anthony Hoo to say in a note “should this trend continue this may result in a regulatory response”.

Home loans to landlords increased 0.6% in January from the previous month compared with a 0.5% gain for the owner-occupiers, Reserve Bank of Australia data showed Tuesday. Investor home loan approvals were up 23% in the December quarter while owner-occupier approvals were down 9%, according to the Australian Prudential Regulation Authority.

APRA stepped in at the height of the previous run by investors in late 2014 and urged banks to curb annual growth in home loans to landlords to 10%. That directive, which still remains in place, slowed the pace of such loans in 2015 and a part of 2016.

These charts from Deutsche Bank sum up the feverish investor activity:

Australia’s largest banks have already started putting up investor mortgage rates and the banking regulator last month updated its home loan lending standards.

The Reserve Bank of Australia governor Philip Lowe signaled that soaring house prices may be holding the central bank from cutting rates further to stimulate the economy. The RBA reduced rates twice last year in August and October.

“Trends in employment, inflation, national income and the Australian dollar, in our view, lean towards a prolonged period of unchanged monetary policy settings,” Michael Workman, a senior economist at Commonwealth Bank of Australia said. “But the housing prices and lending trends may be seen as justifying some more tweaks to lending guidelines.”

Australian capital city home values climbed 1.4% in February, taking the annual growth rate to 11.7%, the highest since the 12 months to June 2010, according to data from research firm CoreLogic. Sydney home prices have surged 75% in less than five years and dwelling prices are almost 8.5 times higher than gross household incomes in Sydney.

The second most expensive capital city, Melbourne, has a dwelling price-to-income ratio of 7.1. Melbourne home values climbed 1.5% in February taking gains since January 2009 to 88%.

“I remain of the view that housing market conditions will moderate during 2017 due to affordability constraints impacting on housing demand, as well as higher supply levels and an eventual slowing of investment demand brought about either through changed policies from Australian lenders or via regulatory changes aimed at slowing credit growth across the investment sector,” CoreLogic’s head of research Tim Lawless said.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.