It had to end. A few weeks of reasonable discussion from Gotti and now it’s panic stations! Perhaps fresh off the phone with Highrise Harry, Gotti climbs into the brewing apartment bust:
I revealed the APRA credit squeeze last month.
But, at the time, I understated its significance by noting how it provided the Reserve Bank with additional room to lower interest rates rather than the threat to the apartment market.
…Suddenly the tightening of money in China and the investor-housing credit squeeze being imposed by APRA are combining. The Australian sharemarket is now getting a whiff of what is taking place so bank shares are being discounted.
…We all know just how important apartment development has been to the Sydney and Melbourne economies but I asked Callam Pickering at CP Economics to prepare a graph to put the China investors in national context.
Any serious reduction in that big share of the market could snowball into a serious decline in our two major cities. In Melbourne the situation is more serious than Sydney because a two-tier apartment market has developed…They might well cause a catastrophe that is not necessary.
Not going to argue with you, Gotti. You’re assessment of an incipient apartment bust is right in my view. And obviously, the RBA will cut rates soon enough.
But the conclusion we need to draw is not to panic loosen now, it is that housing credit should have been tightened by APRA three years earlier, and as RBA cuts again, APRA should keep the screws tight so that the dollar falls.
