Mortgage lending and property prices are in freefall, with potentially damaging consequences for the Australian economy. Should we blame APRA?
Housing finance fell 20.6 per cent in the year to January, according to the latest ABS data. That included falls of 17.1 per cent for owner-occupiers and 28.6 per cent for investors.
Property prices have also been falling. National values fell 6.3 per cent in the year to February, according to CoreLogic, including declines of 10.4 per cent in Sydney, 9.1 per cent in Melbourne and 6.9 per cent in Perth.
Some think APRA, the banking regulator, is to blame, after progressively tightening lending standards from December 2014.
A downturn might’ve happened without APRA intervention
However, housing finance expert Harry Scheule says it’s simplistic to hold APRA solely responsible for this housing downturn.
“There’s no hard evidence to say APRA has caused a fall in property values,” says Professor Scheule, who is Professor of Finance at the University of Technology Sydney.
“Having said that, the changes that APRA has implemented have probably had some impact on the availability of credit.”
That, in turn, has had an impact on property prices, says Professor Scheule. However, it’s impossible to know how much of the downturn has been caused by APRA and how much has been caused by other factors, he adds.
What are those other factors? Well, non-housing sectors of the economy have also slowed. Australia has made it harder for overseas investors to buy local real estate. China has made it harder for its citizens to invest money in other countries (such as Australia). Also, during the boom years, property prices grew faster than wages, which, Professor Scheule says, always leads to a correction.
So when you put those factors together, there might have been a reduction in mortgage lending and property prices even without APRA’s intervention.
APRA’s mandate covers banking, not housing
Many commentators and stakeholders have called on APRA to ease up on its market intervention.
However, Professor Scheule points out that the regulator has actually suggested that there might still be a little more tightening to come.
“What I don’t know is whether now, given the current climate, given the current house price declines, that will be adopted, but last year, APRA was on the way to further tightening. That might be reconsidered in the current climate,” he says.
Professor Scheule stresses, though, that if APRA did ease up, it would not be because it wanted to influence property prices.
That’s because APRA does not have a mandate to prop up the housing market – unless a downturn was so severe that it threatened the stability of the banking system.
“APRA has no mandate to make economic policy,” he says.
“APRA’s mandate is to safeguard Australia’s banks – and not only the banks, but to safeguard Australia’s depositors.
“It’s not APRA’s mandate to make economic policy: that’s the domain of the RBA and government.”