APRA’s job not to “solve house prices” or “solve affordability”

APRA has joined the RBA in knocking back calls for regulatory intervention to cool the housing market’s upward march.

Australian Prudential Regulation Authority chairman Wayne Byres at the House Economics Committee hearing at Parliament House in Canberra.

The prudential regulator has joined the Reserve Bank in rejecting calls for it to take action against the rapid run-up in Australian house prices, but warned it was closely watching to ensure lending standards remain high.

Speaking to the House of Representatives Economics Committee Australian Prudential Regulation Authority chair Wayne Byres pushed back suggestions he take action similar to that taken in 2014 and 2017 to restrict lending to investors.

Mr Byres said the regulator’s job was not to “solve house prices” or “solve affordability” but warned it was closely watching any developments that signalled riskier lending by banks.

“The last statement from the Council of Financial Regulators said quite clearly we are watching for a deterioration in lending standings and that’s not evident at this point,” he said

“That is not to say it won’t emerge but it’s not obvious at this stage.”

The council’s March statement revealed regulators were placing a “high emphasis on lending standards remaining sound” as low rates stoked rising house prices.

“It will continue to closely monitor developments and consider possible responses should lending standards deteriorate and financial risks increase,” the council said.

The public statements follow ongoing news of untrammelled house prices across Australia on the back of record low interest rates and burgeoning savings after international borders were closed.

APRA’s statements come as the Reserve Bank has also refused to remove the punch bowl on rising house prices, with governor Philip Lowe previously noting the bank ought not take house prices into account when setting rates.

Prices jumped 2.1 per cent in February, with some banks tipping double-digit price growth by end of year.

However, Mr Byres noted that if APRA were to push to restrict lending, as it did in 2014 and 2017, it would almost certainly flow through to prices.

He noted the actions APRA took had a “percentage or two” hit to prices but that “credit growth didn’t change that much”.

“There may have been a substitution between investors and homebuyers,” he said.

Speaking last week to the Senate economics committee RBA deputy governor Guy Debelle said although the bank was not responsible for house price policy it took the effects of rates into account.

“The effect of our interest rate decisions on house prices is something we take into account in the setting of our monetary policy decisions,” he said.

“Some of that is the way that some of our policy actions are transmitted through the economy.”

Dr Debelle made the point at the meeting the bank was in the invidious position where the economy would not be in such rude health if it didn’t cut rates.

“If we hadn’t provided this stimulus, we’d have a lot higher unemployment. That’s a choice you have to make,” he said.

Dr Debelle also rejected suggestions from the committee that superannuation be made available to borrowers seeking to fund a home deposit, in a sentiment echoed by APRA’s chair on Monday.

Mr Byres said APRA was “naturally wary” of any “initiatives that add to demand”.

“Seriously in the current environment we are keen to avoid things that lead to an escalation of house prices,” he said.

“You would have to think (allowing access to superannuation to borrowers) would add to demand.”

The comments from APRA came as the regulator revealed the mortgage market was in rude health, with deferrals now accounting for only 0.5 per cent of bank loan books.

APRA deputy chair John Lonsdale said the loan levels had dropped significantly from their peak at 10 per cent of loans in early 2020.

However, Mr Lonsdale noted the regulator was closely watching how the removal of the JobKeeper supplement, which ended last week, would play out in mortgage markets.

“As economic situations change and government assistance is withdrawn, that is something that we would watch very closely,” Mr Lonsdale said.

APRA also pushed back on suggestions that superannuation be made available to borrowers seeking to fund a home deposit.

Originally published as APRA’s job not to “solve house prices” or “solve affordability”