Limited lending
The Reserve Bank of Australia produced a technical paper yesterday discussing the Australian experience with macroprudential policies since 2014.
The paper showed that measures taken to restrict investor and interest-only mortgages...reduced the flow of investor and interest-only mortgages.
This will be case closed for the Twitterati, no doubt: macropru clearly works!
There's no doubt that the measures taken hit the build up of interest-only mortgages for six, even if there were a few hairy moments for households along that path.
On the other hand the economy has largely been putting in a sputtering performance since 2014, with inflation below target for half a decade, so it's not as though were in economic utopia.
Overreaction
The paper did also find that the measures led to some "disproportionate responses".
You can say that again!
It become almost impossible to get a loan for many investors.
And even for those that did manage it, the rigmarole of providing supporting 'evidence' for $5 standing orders for swimming lessons (or whatever) basically rendered the entire process of questionable worth.
In fairness, a good part of all this particular nonsense was related to the Royal Commission into Naughty Bankers, rather than the specific macroprudential measures themselves, so it was clearly a bit of a double-whammy effect.
The RBA paper also found that:
"The largest banks substituted into non-targeted mortgage products while smaller banks did not."
Set and forget
Anyway, my point is that there are often unintended consequences of tweaking lending rules too often, as I discussed here:
It hasn't really shown up in any numbers yet, since they tend to lag, but there are increasingly housing markets around the country where there are no appropriate rental properties at all for relocating families, which is one of the potential issues with cutting off investor credit (unless the government builds rentals).
Hopefully the construction boom for detached housing will help to alleviate this issue over the next six months.
It's a bit of a moot point at the moment anyway, since half of the country is in lockdown, so moves to slow down credit growth probably aren't too high on the agenda.
But it's something which might come back into focus in 2022, so worth watching.
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Property listings continue to fall as demand exceeds supply, especially regionally (but actually across the country):
Source: REA Group
Full report from Cameron Kusher at REA Group here.
