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Housing finance: the case for regulatory change has momentum

Australia’s total housing loans fell for the third successive month in October, dipping 2.5% to $A29.57 billion. The now consistent falls are reflective of the declining approvals with which they are linked and still sees the value of loans 32.2% higher than a year earlier. For the regulators, there is much to ponder in the debt data, as they contemplate a return to normal transmission on interest rates.

As ever, with housing data, the headline makes – well, headlines – but, the details provide all the action. So, sure, we can look at the headline number and say house lending is declining in an orderly fashion, linked to the decline in approvals.

However, as we can see in the chart here, that would miss the point that the value of lending finance for owner occupiers dipped a steeper 4.1% from the prior month, with a 4.8% decline booked for first home buyers. Owner occupiers – established and new – are cooling their heals faster than the total market is cooling.

As a result, we can see that investors are growing their loan values – up 1.1% in October to $A9.73 billion.


Before addressing the regulatory position, we should take a look at first home buyers. As we can see here, their share of total loans has been declining for the better part of a year (19.2% by value in October), and moreover, they are ever-more focussed into the owner occupier territory. They make up a very small portion of investor loans.


In short, first home buyers are not the problem in the market. Prices alone tend to push them in and out of the market without too much regulatory intervention. Not so for investors of course.

Speaking to the Australian Financial Review’s (AFR) Michael Bleby, JP Morgan economists pointed out the value of investor loans was up 90% over the last year and at levels not seen since mid-2015. At that time, it was just six months prior that the Australian Prudential Regulatory Authority (APRA) put lending controls on investors.

To date, there have been few brakes applied on investors, although rising interest rates are likely and widely considered to be desirable for cooling the investor heat. Also writing in the AFR, Karen Maley was directly critical of a ‘prevaricating’ APRA that ignored the market signals for too long.

Maley implies that APRA waited for Treasurer Frydenberg and RBA Governor Lowe to intervene suggesting household debt is rising too quickly – and certainly ahead of incomes.

The pressure is on for APRA to pull on the macro prudential levers within its grasp, even if they only do so for investors.

Posted Date: December 9, 2021

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