“Tulip bubble” Murray shakes snoring APRA

From The Australian:

David Murray, the head of Australia’s financial system inquiry, says the regulators’ 10 per cent limit to growth of investor loans is not enough to slow down fast-paced investor lending, which is creating complex instability in the debt-laden housing market.

Mr Murray, a former Commonwealth Bank chief executive, also urged governments to consider increasing the use of lenders’ mortgage insurance to pool risk in the market and get more owner-occupiers and first-home buyers into the market.

The comments come after two cuts to the official interest rate last year by the Reserve Bank reignited rampant lending to property investors, with current rates of lending labelled a “concerning development” by analysts, given the banking regulator’s attempts to slow runaway house price growth and record-high levels of household debt.

On Friday, Australian Prudential Regulation Authority chairman Wayne Byres reaffirmed the regulator’s commitment to its 10 per cent annual “speed limit” on the growth of ­individual banks’ investor loans, which appeared to slow lending to property investors up until last year’s federal election.

Let’s recall former CBA and Future Fund chief and head of the financial inquiry David Murray’s recent comments:

Switzer: “How vulnerable do you think our banks are to the apartment oversupply?”

David Murray: “Well, the economy’s vulnerable because there’s a bubble in the housing market. All the signs of a bubble are there. Many of the signs are the same as the bubble in Dutch Tulips… People’s behaviour, people’s defensiveness about any correct in that market. All those signs are there”.

Now, if the economy tracks along OK, it might turn out that this thing sorts itself out. But when those risks are there, something needs to be done about it in a regulatory sense and the RBA and APRA need to stay on it”…

Switzer: “Are you surprised [the housing boom] hasn’t started petering-out, particularly in Sydney and Melbourne?

David Murray: “…That’s why I say all those unhelpfull signs are there… The fact they [price momentum] keep going on longer than expected is another sign that it’s not very healthy. And we have more investors in the market than we’ve had historically. And those investors typically – even people on lower incomes own multiple properties – and those properties are often cross-collateralised in the system. So they’re the people who become forced sellers. And that’s the risk to the system”…

Oh David, you doomsayer. Prices double every seven years. The debt is all in the right households. Immigration will never stop. There’s a shortage. Monetary and fiscal will save the day. Doomsayer! APRA knows better, via Banking Day:

“At least for the time being, the benchmarks that we communicated [in 2015] – including the ten per cent benchmark for annual growth in investor lending – remain in place,” Byres said.

“Lenders that choose to operate beyond these benchmarks are under no illusions that supervisory intervention, probably in the form of higher capital requirements, is a possible consequence.”

Byres reminded his audience that “if capital for the banking system is our main policy item, then housing is our main supervisory focus.”

In a survey of recent measures, Byres said “we have lifted our supervisory intensity in a number of ways – collecting more data from lenders, putting the matter on the agenda of Boards, establishing stronger lending standards that will serve to mitigate some of the risks from the current environment, and seeking in particular to moderate the rapid growth in lending to investors.

“And just to be clear about it, we are not predicting whether house prices will go up or down or sideways (as the governor of the Reserve Bank said last night, they are doing all these things in different parts of the country), but simply seeking to make sure that bank balance sheets are well equipped to handle whatever scenarios eventuate.”

APRA’s recent efforts, he said, “have generated a moderation in investor lending, which was accelerating at double digit rates of growth but has now come back into single figures. We can also be more confident in the quality of mortgage lending decisions today relative to a few years ago.”

Of the recent pick-up in the rate of new lending to investors, Byres said this “in itself is not necessarily surprising – with so much construction activity being completed and the resulting settlement of purchases, some pick-up in the rate of growth might be expected.”

Or not, if the detailed commentary in the Reserve Bank of Australia’s quarterly Statement on Monetary Policy is a guide.

Riffing off past cautions on the fragility of the boom in multi-unit construction, or plans for the same, the RBA said “although investor activity is currently quite strong, at least in Sydney and Melbourne, history shows that sentiment can turn quickly, especially if prices start to fall.

“Softer underlying demand for housing, for example because of a slowing in population growth or heightened concerns about household indebtedness, could also possibly prompt a reassessment.”

That is called “diffused responsibility”.


  1. the colonialMEMBER

    First as tragedy, then as farce. I’m struck that it was the fear of becoming the poor white trash of Asia that set us off down this path and the illusion of wealth that will ensure that is what we will be. of course, we’ve always known what we are all along.

    • APRA lobbied and got the bail-ins legislated. Thats all it had to do.
      Like Malcom(e) he did what he had to do…pass the TPP but Trump stopped it, keep the neg gearing going, keep foreign money laundering going, keep immigration up, likely some war thing too.
      Sure to other Big things which passed me by.

  2. “Mr Murray, a former Commonwealth Bank chief executive, also urged governments to consider increasing the use of lenders’ mortgage insurance to pool risk in the market and get more owner-occupiers and first-home buyers into the market.”

    And here I thought Murray turned over a new leaf… now he’s encouraging even more OO / FHB to use LMI (which implies more > 80% “LVR” loans), at around the lowest rates in history for homes priced at triple fair value. How disappointing that his agenda is market composition, not sustainable pricing / debt.

  3. Mr market has done a fine job of regulating the pilbara housing market – how about down 90%, check it out

  4. They’d have to pay me 99 grand to take it off their hands. Who on earth would buy that heap of shit if there ain’t no jobs to pay the rent?
    You really need a doctorate in economics to work that one out, don’t ya?

  5. Even StevenMEMBER

    Its only partly diffused responsibility. The larger part of it, I would suggest, is that the RBA simply thinks everything is ok.

    APRA regulates lending, but does not target a particular level of prices in those lending markets. In short, as long the banks are lending to people who can pay (or who have guarantors), APRA doesn’t care. RBA regulates the economy/financial stability and they do (or at least should) target a particular level of prices. RBA should tell APRA if it has concerns and to what degree it is concerned.

    The need for close dialogue is important because you could have a nasty situation emerge where APRA is satisfied that lending is ok (and default rates remain at ‘acceptable’ levels) but nonetheless, the shock to household disposable income from all those households who can still ‘just’ afford to pay their loans, causes the economy to plunge into recession.

    As far as I know, RBA hasn’t exactly been making loud noises about how uncomfortable it is with high house prices. If anything, they’ve been juicing it deliberately for the wealth effect over the last decade or so.