Has Highrise Harry bent APRA to his will?

It is very obvious right now that APRA ought to be tightening macroprudential. Banks are moving to grow property investor loan books and the regulator will quickly lose the stability it has gained by sitting on specufestors and squashing loan growth to 5%:

Capture

Yesterday’s RBA statement contained an intriguing reference to house prices that may throw light on any APRA delay beyond their innate sluggishness:

Indications are that the effects of supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. Dwelling prices have begun to rise again recently. But considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities.

Basically, that is central banker speak for:

  • APRA has slowed house prices until recently;
  • banks are running scared from the Chinese bid, and
  • we will rely on more supply to curb further price growth.

But that supply needs to be funded. So the above may imply that APRA will allow more investor borrowing to help stabilise any Chinese instability. Which is just what Highrise Harry asked them to do, via Gotti the Meriton foghorn six weeks ago:

Australia’s leading apartment owner and developer, Harry Triguboff, visited the Australian Prudential Regulation Authority and ­the Australian Securities & Investments Commission this week. The ­visits were unprecedented and ­reflect the deep concern Triguboff has with the looming potential crisis in sections of the Australian apartment market…

…The Chinese investors were told that if, on apartment completion, they could raise another 20 per cent to bring their equity to 30 per cent, the bank would then lend them a further 70 per cent, but this offer was subject to valuation of the apartment at the time of settlement and a security assessment of the buyer…

The big rise in supply has caused the Australian apartment market to slip…if buyers of off-the-plan apartments can’t raise the money that they counted on from the local Australian banks and/or in China, Triguboff estimates that apartment prices will fall by 20 per cent to 25 per cent…

…Triguboff wants APRA and ASIC to allow the banks to honour their undertakings to fund 70 per cent of the apartments even if those undertakings had escape clauses based on valuations and so on. If the loan undertakings are not honoured, it will not only cause an Australian downturn and lower apartment prices but severely damage the relationship between Chinese investors in Australia. It may take a generation before they return to our market.

Let’s hope that this rather neat picture is just my filthy imagination.

David Llewellyn-Smith

Comments

  1. More regulation and market distortion is not the answer. H&H.

    Macro-prudential s are not

    • ceteris paribus

      What! How did we arrive at this hideous bubble if not by market distortion through the property complex lobby? They just love market distortion as long as the wealth is distributed upward. Never stand between rentiers and a bucket of money.

      • ceteris paribus is suggesting a land tax to deflect attention and investment away from rent-seeking to productive activity, naturaltrust.This is apparently where you have current placements and I urge you change your settings ahead of the coming deluge.

        Don’t Buy Now!

      • I do not see any mention of a Land Tax, David.

        In any case Land Tax has many detrimental economic effects as I have previously mentioned to you. One of those effects is to cause developers and buyers to create smaller and smaller allotments and buildings to minimize the amount of Land Tax payable. Apparently you support smaller dog boxes, David.

        I agree with you, David, that this is not a time to buy property. I am glad to see that we are in agreement.

      • drsmithyMEMBER

        In any case Land Tax has many detrimental economic effects as I have previously mentioned to you. One of those effects is to cause developers and buyers to create smaller and smaller allotments and buildings to minimize the amount of Land Tax payable

        None of your claims about Land Tax have ever been supported by evidence.

    • MB is advocating a whole range of property market reforms:

      -MP
      -supply side liberalisation
      -less demand stimulus
      -negative gearing reform
      -land tax
      -lifting TBTF or at minimum make paid for
      -raising mortgage risk weights

      MP is a part of the solution. Has had a big impact so far. And you are being absurdly reductive.

      • Dear H&H.

        You say: “MB is advocating a whole range of property market reforms:”

        I say: “Good.”

        You say: “-MP”

        I say: “It is a band aid.”

        You say: “-supply side liberalisation”

        I say: “Good.”

        You say: “-less demand stimulus”

        I say: “By doing what?” “If you mean by stabilizing immigration as an immediate and very effectual means to create less demand stimulus? then I say: Good.” (Bringing new land onto the market takes time and is also just another way of building a big Australia and requiring more resource maintenance and consumption).

        You say: “-negative gearing reform”

        I say: “Good.” I also say: “We should toss out negative gearing entirely as it will have the same effect on new housing as it does on existing housing. But I am happy to remain quiet about that as partial removal of NG is better than no removal of NG.”

        You say: “-land tax”

        I say: “Land Tax is disasterous as it creaates many problems which I have previously written about.”

        You say: “-lifting TBTF or at minimum make paid for”

        I say: “Do you mean To Big To Fail?” “Well, that is a part of the economic problem as is poorly targeted taxation and many other issues. That is not what I have written about in this blog today. I have said macroprudentials are a band aid and lower interest rates are like trying to push a piece of string. I don’t think we need to go into TBTF now.

        You say: “-raising mortgage risk weights”

        I say: “This is another band aid solution.”

        Elucidating I say: “There is a need to ensure banks always have the capital to cover their lending risks. I assume you are referring to the real estate Loan to Valuation Ratio Risk here. With the current real estate bubble there is an increased risk of mortgage default and potential bank failure. The solution is what I have written in this blog. Your “raising mortgage risk weights” solution is a band aid that increases costs and reduces private capital flows in the economy which contributes to economic crises. Far better to cure the problem by the means I have written on this page and that you are criticizing.”

        You say: “MP is a part of the solution. Has had a big impact so far.”

        I say: “MP is a band aid solution as I have stated on this page.”

        You say: “And you are being absurdly reductive.”

        I say: “I do not agree. What I am saying is correct.”

    • notsofastMEMBER

      Correct me if I’m wrong but isn’t the banking system and indeed the whole financial system already perversely distorted at the moment. I would be very surprised if we could have more distortion than we already have now.

      One place I do expect more distortion in the future is in the real estate market. I see increasing barriers to people cashing out and accessing the capital in their real estate holdings.

      • You are right, notsofast. There is over regulation and H&H and his colleagues want more.

        And yes, moving capital in and out of real estate is expensive and constipated.

      • You are right, notsofast. There is over regulation and H&H and his colleagues want more.

        And yes, moving capital in and out of real estate is expensive and constipated.

  2. proofreadersMEMBER

    The RBA started and fed repeatedly stoked the property bubble and then gave a hospital pass to APRA to get it to cool it down, but instead APRA dropped the ball because it wasn’t awake to the pass coming. Tweedle dum, tweedle dee.

  3. BAND AID SOLUTION; MACRO-PRUDENTIALS

    More regulation and market distortion is not the answer. H&H.

    Macro-prudentials are not a solution, at best they are a band aid.

    We are in distorted economic times, The reason interest rates are so low and are, led by band aid solution neo-capitalist economists who argue about how hard to push, or not, a piece of string, going lower is the mismanagement of those mis-educated neo-classical economists who do not understand that excessive private debt and shifting of production offshore from the developed economies are the primary cause of reduced economic activity and deflation in developed economies…

    Low interest rates and macro-prudentials are misconceived band aids that are not needed and are economically damaging as the low interest rates are causing asset inflation and macroprudentials are simply a band aid to try and fix the damage caused by the current low interest rates.

    Macro prudentials are more unnecessary regulation on top of other regulation instead of fixing the problem (s).

    Negative gearing (another market distorter) needs to go.

    Stabilizing population growth by reducing immigration to a level that will stabilize population or go negative is an excellent environmentally sensible pause method while we think things through about what sort of society we want to live in. Do we want to live in an environmentally depleted, planet warming (eventually destroyed), dog box housing, low income society or do we want something else?

    If we do as I have suggested then raising interest rates is then a viable proposition. Not cutting interest rates or leaving them at current low levels while our quality of life is eroded (note lowering wages, increased asset prices and environmental degradation).

    A debt jubilee where everyone is given a fixed amount of money (sufficient to reduce private debt per capita to around half its current level) and those with debt are required to pay back the debt will solve the current high private debt problem that the RBA is trying to repair by the failed low interest rate procedure topped off with macro prudential band aids.

    Alternatively, or in concert with a debt jubilee, massive government expansion into R&D support and investment will launch the economy into a new phase of positive forward looking growth that will pay dividends for generations.

    As I said, the reason rates are going lower is because of the mismanagement of mis-educated neo-classical economists who do not understand that excessive private debt and shifting of production offshore from the developed economies are the primary cause of reduced economic activity and deflation in developed economies…

    Low interest rates are not needed and are economically damaging as they are causing asset inflation.

    Macro prudentials are more unnecessary regulation on top of other regulation instead of fixing the problem (s).

    Some readers will decry the increased expenditure by government that I have suggested. That is another of the neo-classical economist false beliefs that simplistically and wrongly compares national economies to household budgets.

    The money to finance the government expansion spending is borrowed by government from the RBA, This is essentially free money as the RBA pays the interest back to the government less RBA expenses each year. Eventually this government debt can be forgiven by the RBA and it has much the same effect as recent quantitative easing In a deflationary environment; this is not problematic. The government’s investments should be targeted to be deflationary once in effect. For example alternative energy.

    • This makes a lot of sense to me, but I’m not highly educated in these matters.

      Could someone explain what’s wrong with that solution please?

      • All of that makes sense, but none of it is practical if your biggest trading partners do not play by the same rules as you. Having a free-market sounds good….to others, who will and have used it to advantage. The sad answer is to play by their rules. If that’s more Government control; capital control; exchange rate control, as well as other monetary control, then that is what it will be.

    • “A debt jubilee where everyone is given a fixed amount of money (sufficient to reduce private debt per capita to around half its current level) and those with debt are required to pay back the debt will solve the current high private debt problem that the RBA is trying to repair by the failed low interest rate procedure topped off with macro prudential band aids.”

      Unlimited free houses for those who willfully participated in the greatest theft of wealth from the younger generation in return for massive amounts of inflation, to be paid for by those who were stolen from?

      Fuck off.

      How about crushing 20 year bankruptcy for the gambling thieves (instead of Turnbull’s Innovative 1 Year baloney), and massive deflation of those stupidly overpriced houses without inflating the cost of everything else?

    • Re debt jubilee, what is to stop people paying down their debt and then reborrowing to buy more property at higher prices? This doesn’t in itself solve anything, just sets us back a few years from returning to the same position.

      Also won’t (more) people living in dog box housing reduce the impact/our footprint on the environment?

      • If you prefer dog box housing Bullion Baron you now have a wide choice in the biggest capital cities.

        People can buy another home or dog box if they wish in a debt jubilee: they can buy whatever they choose if they have extra money to do so. Will you buy another home, or a new car, or bigger lunches or a bigger TV.

        You can always refuse to accept the money if you choose. You, like everybody else, will surely want to spend it on something or save it. You seem to prefer to have less rather than more?

      • It was just unusual to complain about our environmental impact as well as a housing type which would reduce this.

        I wouldn’t refuse it, I would pay down the PPOR with the funds and then borrow against it to invest. Many others would do the same and if most of that extra borrowing capacity was funneled back into property then we are back to square one in the near future.

      • adelaide_economistMEMBER

        “Also won’t (more) people living in dog box housing reduce the impact/our footprint on the environment?”

        Generally once the intensity of materials used in higher density/high rise living is added into the mix, dog box housing is actually the least efficient type of housing unfortunately.

        See for example: “Hybrid Life Cycle Assessment of Low, Mid and High-Rise Multi-Family Dwellings” http://www.mdpi.com/2078-1547/6/1/98

      • Try this article as a starter re Debt Jubilee, Bullion Baron.

        https://www.prosper.org.au/2016/03/29/the-modern-debt-jubilee-a-taboo-medicine-we-desperately-need/

        Re your implication that house size reduction is a means to conserve the environment:

        My reply is that humans are also part of the environment and should have the best possible life available to them while on planet earth. That means environmentally positive housing with all economically possible sustainable and luxurious physical, spiritual and aesthetic attributes.

  4. The housing bubble is the Australian economy now and the public service has been politicised. No one wants Australians pointing their poopy fingers of blame at them for bringing in a depression. It’ll be arse covering and limp lettuce leaves all round until it blows, followed by an epic chorus of ‘whooocooooodanoooode’.

    APRA are in a tight spot; this bubble is becoming highly unstable, so they’re damned if they do, and damned if they don’t.

    • Exactly, pretty simple really, we’re in the end game after two decades of increasing greed and corruption. Now it’s a game of pass the hot potato, or more accurately, pass the real estate debt bomb.

    • Probably no need of bribes.
      If most APRA staff have investment properties it is in their self-interest to maintain the bubble.
      Call it conflict of interest if that helps.

      • Agree with simples, APRA staff would be part of the demographic heavily invested in property so would be best to have low expectations of anything useful to come out of them. Don’t need bribes when their interests naturally align.

  5. I missed the original article about Harry going to APRA and ASIC. The country’s richest person and property magnate gets private audience with the organisations in charge of regulating his industry. How is this not corruption?

    • According to a friend who did some work at Meriton building sites back in the day, Mr Triguboff can be very, very, persuasive.

    • As someone who has been part of APRA’s industry consultation, I can assure you that what is said in those closed door meetings will never make the public record. APRA’s role is effectively to partner with institutional power, not usurp it. APRA’s resolve and appetite for a fight is not strong – they are Chamberlain to the banks’ Hitler.

  6. Very disappointed that the Housing Affordability Party has been told that its application for party status was late according to the electoral authority, despite HAP doing all that was expected of them.
    Has the smell of corruption about it.

  7. Would it be worthwhile to check if any APRA employees or their children got a deeply discounted Meriton dog box?

  8. HnH,

    Nothing filthy about your imagination at all.

    It all fits a consistent narrative that starts with the ‘unexpected’ end of the mining boom and a search for solutions within the post Wallis framework.

    If mining and the associated CAPEX could no longer be relied on an alternative was required. If the public balance sheet had been neutered by ‘fiscal conservatism’ that left the private household balance sheet – the gift that had already been giving for a decade.

    RBA starts cutting the target rate and APRA lets the banks off the leash and lets them blow out off shore borrowing of ZIRP/NIRP capital.

    The reason was clear – off shore borrowing allowed mortgage rates as close as possible to the RBA target rate. The down side was that the exchange rate was held higher on those strong inflows of unproductive capital.

    Loan officers could now approve cheap loans with abandon and they did.

    But lending to vanilla Australian speculators was not enough and SMSF were allowed to load up on debt as well.

    The population ponzi was juiced to keep things moving on the demand side.

    But still that was not enough to drive the economic ‘rebalancing’ the RBA and APRA were looking for and the local banks were allowed to lend to foreigners who were not even temporary residents – if they wanted to punt on OTP developments.

    Fonzie on water skis.

    The recent fly in the ointment of this madness has been the decision of the Chinese government to stop the punters spraying Chinese capital (even if much was being supplied in the short term by Oz banks – borrowed offshore) AND the growing political sensitivity to large numbers of foreigners breaking FIRB laws.

    Internal and external politics was turning down external demand just as it was OTP au go go.

    It is highly unlikely that APRA lost its love for offshore punters – it just had to face the fact that the Chinese govt was cutting off the supply and the locals were getting increasingly pissed off.

    This unexpected pressure on demand for loans on two fronts gave APRA and RBA two choices.

    1. Acceptance a significant reduction in demand for property loans and watch the market go soft.

    2. Cut the rates and encourage the banks to spray credit at locals and hope they fill the gap left by offshore investors – until perhaps the Chinese govt relaxes its position or the politics of population ponzi and flogging off the nation to foreign temporary residents or simply foreigners improve – i.e. the Australian public is distracted from the issue.

    Harry was simply arguing in favour of an option that the RBA and APRA would prefer anyway. To them private debt doesnt matter and the exchange rate is not THEIR problem – they just observe it as they would a storm front rolling in.

    From their perspective the effect off all those low mortgage rate producing capitals inflows on the exchange rate is not their concern.

    They are more worried about a collapse in credit growth setting off a debt deflation process.

    Every boot is now kicking the can like the finale of a Tap Dogs show.

  9. Saint Matthew

    Does one need to make an appointment to see the Commissioner or can we just drop in ?

  10. All those apartments are empty, how are more empty apartments going to help affordability?! Melbourne is the worse, thousands of apartments sitting empty used as corruption hedges, horrible city.

  11. Eventually we’ll have to go back to the gold standard because we have now proved through the experience of the last few decades that Milton Friedman’s idea of the sliding devaluation of the national currency has caused the wholesale export of well-paid Western jobs.
    The gradual lowering of interest rates in his sliding devaluation has been wonderful for governments intent on forever deficit spending as the rate has gone to zero and then below zero…but the result has been constant deflation and the destruction of capital.
    The gold standard is the only monetary system that is free of bias in favoring either debtors or creditors, and it keeps interest rates stable(not prices, as was once thought).

    • Athalone,

      The problem with the gold standard is that it does not use gold it relies on promises expressed in gold.

      Promises expressed in gold are just as flakey as an other IOU – in fact they are the original kind of flakey.

      There is nothing wrong with a fiat – money PURELY as law system – provided that the banks are not given a licence to create the stuff by giving state protection to their IOUs.

      Only the govt should be issuing public money.

      There is also nothing wrong with a private gold backed money supply for those that prefer that model.

      The only thing a government need to prescribe is what money the public can use to pay their taxes.

      In this age of vast computing power and easy conversions people should be free to use whatever ‘money’ they choose.

      If you are happy to accept my Gold backed Westpac Wozza I should be free to use it with the rate of exchange agreed between ourselves.

      • “In this age of vast computing power and easy conversions people should be free to use whatever ‘money’ they choose.”

        Agree in principle, but in practice this may become more difficult e.g. for competing currencies to exist unimpeded we’d really need CGT exemptions for those assets used as monetary instruments.

        “Can you just imagine the administrative nightmare that would result from performing regular transactions in a foreign currency and having to maintain a record of whether you made a gain or loss as a result of fluctuation in the currency markets? It is simply not practical.”

        http://www.bullionbaron.com/2013/12/glenn-stevens-talks-bitcoin-competing.html

        If individuals could use any ‘money’ they choose and we introduced rules to exempt that from CGT, how would you then avoid those rorting the system by claiming any asset which has increased in value is money? There would need to be some rules around the nature of the transactions or limitations on what could be used as money?

      • A GST exemption for gold and silver would be reasonable to facilitate their use as a form of private money.

        For me the important thing is to distinguish between public money and private money and then let the owners of each use them.

        Competition from private forms of money will help to keep the custodians of public money doing a good job.

      • Metals already have a GST exemption in investment form, but the main issue is CGT. If I buy Gold and then dispose of it through trade for goods (or selling it for AUD or another currency), then I am liable for CGT on any increases in it’s value (in AUD terms). This makes Gold or any other form of private money unsuitable as a competing currency.

        Imagine if you had to pay tax on any gains in any purchasing power increase in the value of the AUD when buying goods, would not work.

        You would need to define a monetary asset and then exclude it from GST/CGT for competing currencies to work.

      • Sorry I ms-typed

        GST when I meant CGT

        Specific exemptions for both of those for gold

        Whether silver warrants the same treatment might require more consideration.

      • Isaac Newton designed the Gold Standard.
        Newton was very astute…his intellect even greater than Bullion Baron and Pfh007.
        Through the ages different designs including the one which has failed in the last 45 years, have never stood up to Newton’s design.
        It is the only one fair to both creditor and debtor alike and the only one that keeps interest rates stable.
        It is the design that best suits keeping the politicians on a tight leash.

      • athalone, I’m sure Newton would have had the intellect to recognise that his design may not be sustainable or relevant for civilisation 300 years into the future. Pretty pointless discussing any topic with someone who refuses to engage with others or consider alternative view points because the long dead individual who shaped their views had a higher intellect than those with whom he is conversing.

      • @ Miguel
        I’m very surprised that you didn’t realise that central banking was about alchemy…where have you been?
        What on earth do you think is going on?
        Central banking has always been about alchemy and more so over the last 45 years.
        Better to follow the rules of the Master Alchemist Newton than to agree with the unfathomable price in central banks’ Faustian deal with the devil.

  12. reusachtigeMEMBER

    Macroprudential…? AHAHAHAHAHAHAHAHAHAHAHAHA!!!!! Youse fellas. Lower teh interest rates. That will fix thing.

    • “Not one of my five grown children are home owners. Their generation has been priced out of the market,”

      And who still pays the taxes? Those 5 children or the millionaires who already figured out how to cheat China?

      • Too right Mig. Who pays the taxes for the roads the Kleptocrats now drive their ample X5s on? Who pays for the schools their kids can no longer access because the Kleptocrats have moved into and forced the zones to be shrunk to the size of a pinhead? Hospitals you can’t get seen at. I could go on. Staggering.

      • Who pays the taxes for the roads the Kleptocrats now drive their ample X5s on? Who pays for the schools their kids can no longer access because the Kleptocrats have moved into and forced the zones to be shrunk to the size of a pinhead?

        New immigrants of course.

        Australians are on the cusp of no longer mattering. Superfluous. Most will not understand how it happened until the book comes out …..”Australians are fucking morons that let the right trick the left into populating Australia”.

        Cue @drsmithy, telling me I’m racist.

      • Who pays the taxes for the roads the Kleptocrats now drive their ample X5s on? Who pays for the schools their kids can no longer access because the Kleptocrats have moved into and forced the zones to be shrunk to the size of a pinhead?

        New immigrants of course.

        Australians are on the cusp of no longer mattering. Superfluous. Most will not understand how it all happened until the book comes out …..”Australians are fucking morons that let the right trick the left into populating Australia with rich migrants”.

        Cue @drsmithy, telling me I’m racist.

      • ‘that let the right trick the left into populating Australia’…or Europe or anywhere else with high levels of low fertility rate debt addled demographically declining white devils.

      • Correct Richard. The right is fooling the left and exploiting the population by excessive and environmentally damaging population increases.

    • fitzroyMEMBER

      The impact of foreign buying is and has been consistently understated by pollies and commentators alike. It seems to be assumed that because there are no statistics there is no problem. The pollution that in part drives these acquisitions has to be seen to be believed.

      • yeah exactly, the best thing that could happen to straya is that china cleans up its air and they stop coming as this once great country to live in can no longer help itself having become the junkie whore of asia

  13. why should grubby harry get access to apra when the average punter can’t

    what makes him so special

    democracy….pftttt

  14. There was an article recently which detailed the meeting in Melbourne a couple of weeks ago between Australia’s largest developers to consider the impacts of APRA on the market – there were government and agency reps at this meeting.

    Its not high rise – they are literally telling them what to do.

    Maintaining the pressure by this blog on APRA is essential – start calling them out by name – they are public servants and absolutely need to be held accountable.

    The pressure is building.

    Oh, by the way – Is anyone seriously believing that Australians are going to take up the fall off in demand by the Chinese for our apartments?

    Like – ANYONE ?

    • Have you heard of the new school kid visa? 400 visa I think. Government are thinking up new ways to f%$# us over every day, and we carry on with this BS.

      The problem is IMMIGRATION.

      • Correct Richard. The right is fooling the left and exploiting the population by excessive and environmentally damaging population increases.

      • Correct Richard.

        The right is fooling the left and exploiting the population by excessive and environmentally damaging population increases.

      • “Correct Richard. The right is fooling the left and exploiting the population by excessive and environmentally damaging population increases.”

        Maybe, or maybe Labor and the Coalition genuniely have no idea how to drive our ponzi economy forward any other way? Like anyone caught up in a ponzi scheme they’re probably just trying to buy time until the next thing comes along to bail them out of their mess.

    • Torchwood1979

      Oh, by the way – Is anyone seriously believing that Australians are going to take up the fall off in demand by the Chinese for our apartments?

      Like – ANYONE ?

      I’d believe there are backbenchers who are dumb enough to believe it. They’re also dumb enough to believe encouraging Australians to do so would be a good thing for everyone.

  15. It is rather curious; Europe (738 million) , the U.S. (335 million) have immigrations too and Japan (120 million) has guest workers, yet their houses, overall, are a fraction of the cost of ours.
    One must wonder for how long though, ah?

  16. notsofastMEMBER

    Good focus of the issue by MB.

    Focusing on sectional interest driving poor lending standards (admittedly in a very broken financial system – how did we get such a peverse financial system where private bank debt juiced by sectional interest groups yet is guaranteed by the Public Purse when the Public via their elected representatives have next to no say in lending standards???). that drives asset price inflation. Asset price inflation that threatens to undo us all (well most of us anyway), even almost all of those who cheer on every real estate price rise, when the next external financial shock hits. Public have little say in financial stability.