Investors looking to make an easy buck out of the housing market could be running out of time.
Australia’s financial regulators are in talks to tighten the process for investors trying to obtain a mortgage, saying the market has become “unbalanced”.
Tougher rules could be in before the end of the year.
The Reserve Bank of Australia flagged its concerns in last week’s financial stability review, prompting the Senate’s economics committee to call an impromptu public hearing for Thursday.
RBA assistant governor Malcolm Edey stressed to the hearing regulators weren’t trying to kill the investor market, just address imbalances compared to the rest of the housing sector.
Over the past couple of years, housing prices have risen strongly, and more recently faster than incomes because of the growth in investor activity.
The RBA couldn’t ignore this activity with mortgages to investors accounting close to 50 per cent of new housing loan approvals, and rising by 90 per cent in NSW over the past two years.
However, Dr Edey was reluctant to be specific as to what tools might be used, refusing to “rule anything in or out”.
Targeted measures would be determined by the banking watchdog, the Australian Prudential Regulation Authority.
APRA’s tools may consider incentives to make banks restrain the growth in lending, while considering lending practices in some areas of the housing market more generally.
APRA has already tightened the prudential framework for banks in the past year.
“I see what they are talking about now is very much turning up the dial of that,” Dr Edey said.
RBA head of financial stability Luci Ellis told the senate hearing the main worry was the booming Sydney and Melbourne markets, and price rises elsewhere weren’t enough to cause concern.
“We are worried about what the downside of that house price cycle would look like,” she said.
The housing market is set to the backbone of economic activity as the mining investment boom rapidly unwinds.
Data on Thursday showed building approvals rose by a further three per cent in August to be 14.5 per cent over the year.
ANZ economists expect the elevated level of building approvals will fuel a solid pipeline of planned housing construction, particularly for high-rise apartments in Sydney, Melbourne and Brisbane.