A leading Australian economist has hit out at the prudential regulator’s decision to curb investor lending and questioned its 10 per cent speed limit.
Dr Andrew Wilson of Domain Group told Mortgage Business that APRA’s claims of an overheating market have not yet been proven and that the motives behind its decision require greater scrutiny.
“I don’t think we’ve had a full and a detailed modelling and explanation as to the nature of the policy shift and the details as to the actual quantities that have been determined that would be a so-called risky level of investor lending in our market,” he said.
APRA’s decision to put a speed limit on investor lending has resulted in countless rate changes from Australian lenders in an effort to take the heat out of their investor portfolios.
But according to Mr Wilson, APRA’s measures are misguided.
“Where's the heat? I don't understand where the heat is,” he said.
“We have the lowest level of mortgage defaults we've seen. Affordability is still below average levels. The only issues we really have in the Sydney market are low levels of first home buyers and that's just a reflection of the internationalisation of the Sydney market that has become so expensive.”
Dr Wilson noted APRA’s approach has been a “one-size-fits-all model” that ignores cities outside of Sydney and Melbourne.
“We've had a lot of sloganeering happen over the last 12 months particularly about housing market bubbles [and] international buyers,” he said.
“We’re now seeing a moderation in housing market activity in Sydney. We've had interest rates on hold for four months so that means affordability has plateaued and price growth will plateau as a consequence. This is the nature of our housing markets and we're very fortunate that we have those inbuilt stabilisers in our housing market. I think once we see policymakers interfere in that process, the downstream consequences are really problematic."
The crackdown on investor lending started gaining momentum late last year, when the Reserve Bank of Australia highlighted the disproportionate surge in investor home loans as a potential risk to Australia’s financial stability.
In its September 2014 Financial Stability Review, the central bank noted that the composition of housing and mortgage markets “is becoming unbalanced”.
But Dr Wilson fears the recently introduced lending curbs will create even greater imbalances in the future.
“The danger is that we’ll create imbalances in the marketplace down the track,” he said.
“I don’t know what the modelling is, what historical evidence of risk that APRA are trying to avoid here because our housing markets have a reputation over the longer term of orderly growth and correction phases.”
While he doesn’t necessarily believe APRA should come under investigation, Dr Wilson said the prudential regulator has a lot to answer for.
“It’d be good to have some more transparency about the actual modelling behind the crackdown,” he said.
“APRA's said that they don't want to have investor lending growing by more than 10 per cent [but] I'm not sure where they've got that particular number from and they're saying that the reason behind this is to guard against risk in the housing market. Again, I'm not sure if we've had them explain clearly what these risks are exactly and what their modelling is.
“I just think that we need to have those questions answered by APRA. What is their modelling? Where is their evidence of an overheating market? Why is this a one-size-fits-all model that would restrict residential property investment and economic activity downstream in markets that are crying out for that at the moment? Which really are most markets with the exception of Sydney and Melbourne.”