Despite years of commentary and exhaustive economic analysis into the problems of housing affordability, most governments have steadfastly refused to entertain the need for a nationally coordinated policy approach to housing.

Now, as the market appears to have peaked and banks and regulators are tightening lending conditions to curb market exposure, another Government inquiry into home ownership and housing affordability is underway. But is it all now too late?

Traditionally, conservative Federal governments have resisted calls for a housing Ministry on the basis that this is really a responsibility for the states and local governments, which it is. State governments are responsible for regional planning and for policy approaches which affect supply through regional land use policies and through tax policies. Local government also plays a significant role in land use planning and local taxation. Combined, state and local governments are responsible for the gamut of land supply restrictions, planning red tape, excessive political interference in planning decisions and exorbitant taxation of new supply through up front infrastructure levies.

These have been repeatedly identified as key culprits in the worsening housing affordability situation in Australia, yet despite the mounting evidence of policy failure and its impact on housing costs, little has changed. The Federal government has maintained its view that housing policy is for the states and local governments. What’s worse, we’ve even seen the Prime Minister suggest that escalating prices in Sydney and Melbourne aren’t a bad thing, and the Treasurer shrug off suggestions that excessive price growth poses risks to the economy. Instead, his focus is on pinging a number of foreign investors operating outside the law. You can’t help but feel this is a distraction to the bigger issue.

The head of the Reserve Bank, Glenn Stevens, has been muttering his concerns about excessive investment in housing for some years, leading him to describe the Sydney market earlier this year as “crazy.” This is coming from one the most conservative people in the country, who chooses his words with particular care, knowing that what he says can influence exchange rates and the entire economy. Imagine how concerned he must have been to let fly with a word like “crazy”? Or how he felt to find the government largely ignoring him?

Not waiting for yet another parliamentary inquiry to report, the Australian Prudential Regulation Authority (APRA) has started to tighten the lending screws, particularly for investors – who for the first time ever account for more than half of all housing lending. Banks are taking note and also pre-emptively increasing their interest rates for investors and lowering their loan to value ratios. While there is still some steam in the market, signs of cooling are already starting to appear. History tells us that downturns are almost always impossible to predict accurately, they arrive much quicker than anticipated, and take much longer to get out of.

If what we are about to see is a rapid cooling of overheated markets, particularly those driven by speculative off-plan apartment sales in major cities but also more generally established housing, this will not be a good thing. A lot of people will lose a lot of money, and confidence will take a hit. The economy will suffer.

What would have been preferable is a sensible national policy approach to housing supply and investment, which may have prevented the recent explosion of speculation in housing. A more sustainable increase in prices, if supply was allowed to match demand, might have seen modest price rises and affordability preserved for younger families trying to enter the market. It also would have prevented any rapid market deflation because there would have been no ‘bubble’ in the first place.

Ironically, as seems typical for Australian public policy, moves to introduce sensible policy settings may come when it’s all too late. Introducing changes into a falling or uncertain market have a habit of only making things worse.