Strong housing activity and strong financial system not mutually exclusive

Strong housing activity and strong financial system not mutually exclusiveThe RBA needs to exercise caution before introducing macro-prudential reforms which may give rise to unintended outcomes.Prudent management of Australia’s financial system need not dampen strong levels of activity in the residential market if the right policy levers are chosen.The right policy levers are crucial to avoid perverse outcomes, such as greater difficulty for first home buyers entering the market and a reduction in new supply caused by a drop-off in investment.Arbitrarily increasing lending measures runs the risk of shutting more first home owners out of the property market. Macro-prudential controls should only be introduced where there is systemic risk.Domestic housing finance lending in Australia has been managed prudently by the banking sector and this is confirmed by today’s announcement by the RBAThe RBA needs to be careful if changing borrowing practices applied in some localised mainland centres which may have an adverse impact on cities such as Hobart, Adelaide, Canberra and regional Australia.The Property Council also supports the continued role for the Reserve Bank where it has oversight of lending institutions and regular mortgage book stress tests by the banks. Oversight of mortgage brokers is also important to ensure that loans are only offered to borrowers who have ongoing capacity to repay.These are currently all measures that are working adequately.Continued attention to these prudential measures in the financial system is always needed to ensure that the housing market continues to play its positive role in underpinning the strength of the economy and the financial system.