by Marshall Cobb - Principal
CoreLogic reported this week that Sydney house prices are up 19% over the past 12 months, and this is clearly not the news that the Government, nor most of our population wanted. While it is nice to watch your own home continue to increase in value, above average growth also brings with it a sense of anxiety as to whether or not the market will fall, and if so, by how much.
So with the RBA reluctant to lift rates to cool the market, the Government quietly turned to the Australian Prudential Regulatory Authority (APRA) for some leadership.
With a wink and a nod from APRA (and clearly against the RBA's advice) most banks increased their interest rates over the last 10 days. In any other industry, such an obvious level of collusion would trigger a Royal Commission. And with that little job done, APRA today warned the banks to reduce the number of interest only loans that are being written, as they feel that they boost the credit available to property investors and is part of the property price problem.
I believe that the attempts to influence the market by policy are a band-aid and will not work. In fact, I think that squeezing the credit supply may have the opposite effect, as it will slow down the rate of sale and the knock-on effect is that the developers will build less, and restricted supply will only lead to more price growth (economics 101).
In my humble opinion, the only option for slowing property price growth, and improving affordability is to increase supply. In other words - KEEP BUILDING!
Government can play with interest rates, stamp duty, first home buyer concessions and the foreign buyers stamp duties, BUT, none of these will have the same effect as simply increasing the supply of stock and letting the free market do its thing.