Housing crash blame game erupts

I’m back Monday but here’s a little warm up post. The politico-housing complex has joined the new year with a wailing siren of destruction. Leading off is disastrous L-plate Treasurer, Josh Frydenberg, who appears to have qualified for the job only thanks to an apposite moral flexibility, via the AFR:

“Now that APRA have lifted some of their restrictions on investor lending, we should see a pick-up,” he said.

“My message to the banks is still very clear – keep the books open.

“It’s in the banks’ interests, it’s in the economy’s interests, and it’s certainly in the public’s interests.”

UBS put it best last year:

The removal of the Interest Only cap is unlikely to result in a re-acceleration of housing credit growth in our view. The major banks should continue to tighten underwriting standards as they move towards complying with Responsible Lending laws (i.e. verifying customer income and expenses) in response to the Royal Commission and will result in further reductions to customer maximum borrowing capacity.

…Further, while the caps will now be removed for most ADIs, APRA has cautioned them to “maintain prudent internal risk limits”, and has made it clear that “a re-acceleration in interest-only lending at an industry-wide level would raise systemic concerns. In such a scenario, APRA would consider the need to apply industry-wide measures in response.” We therefore view the removal of the Interest Only cap as largely irrelevant and we leave our housing credit growth forecasts unchanged.

That’s what the L-plate Treasurer is really on about: the election. As house prices fall, and the economy grinds to a halt, the election is going to morph into a giant housing bust blame game. In one corner we will have Labor and its negative gearing reforms. In the other will be EVERYBODY else: the government, Treasury, RBA and press. It’s just as well Labor’s lead is unassailable and shadow treasurer Chris Bowen has the backbone and smarts to push the reform through for mid-2020.

In the meantime expect more of this, via The Australian:

Westpac chairman Lindsay ­Maxsted has warned that a rising tide of banking regulation, ­including excessive restrictions on new loans in the wake of the royal commission, is tightening credit and causing the pace of lending to homeowners and businesses to slow.

…He said Westpac’s books were “open’’ but there were limitations on demands from borrowers as people and companies currently had lower appetites for lending.

Corporate leaders including former mining boss Hugh Morgan, property developer Bruce Dixon, Westpac director Peter Nash, South32 chairman David Crawford and financial services chief executive Ahmed Fahour yesterday echoed Mr Frydenberg’s comments. They warned that banks, risk-averse in the wake of the royal commission into the financial ­sector, could drag the nation’s economy to a halt.

The master race at play, eh. Shifting blame back to the government. Nothing will change in lending standards before the election and I remain doubtful that they will change after. Most of what we see above is self-interested arse-covering. The housing market has now shifted to internal dynamics anyway as the RBA has baked-in a deflation mindset. It’s weakening demand not supply that is now the issue, as NAB said late last year:

Further evidence has emerged of a softening housing market, with National Australia Bank chief executive Andrew Thorburn revealing home loan applications to the bank have fallen by 7 per cent over the past six months.

While Mr Thorburn said he still expected housing credit to grow by 3-4 per cent next year, concerns over falling dwelling ­prices and the possibility of rising interest were taking hold among borrowers…

Mr Thorburn said the supply of credit was not a problem — it was more on the demand side.

Only one thing can fix that. Cheaper credit to shift expectations back to price inflation. The RBA is going to cut. My guess is March after it slashes forecasts in the February SoMP and then again in June, book-ending the election campaign.

The real question remains what impact will that have? As China slows and the terms of trade plunge during H1, probably not much.

Stay tuned. We could be printing by this time next year.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

Did you know the MB International Shares Fund has returned an average of 17.1% per annum and the Tactical Growth Fund an average of 10.4%? Register below to learn more:

Latest posts by Houses and Holes (see all)


  1. Printing, just forestalls the inevitable ( a necessary correction in all asset market prices). Can’t we see that from the way the largest economy(s) on Earth has handled it and the results? Perhaps we can’t….

      • Exactly, because a tiny group of people have a money printing press whilst everyone else has to work for money – criminals calling themselves something else.

      • “Here’s a campaign poster with the property industry admitting that they’ve built a house of cards.”
        Which organisation was this moronic poster designed for?

      • What are you talking about dudes? Were you born yesterday?

        The house of cards ran on national TV, about 2 years ago.

      • The problem is we will probably also emulate the bad part as well – QE not making it to the real economy but instead the financial economy where banks get trillions in bailouts but the average worker is defaulting. What we need is inflation in wages to lower the debt to income ratio and money printed should be directed there. If the dollar has to drop to accommodate this which is what it will do if you give it to the household sector all the better. As a country we can be self sufficient anyway so in the long-term I don’t see a lower dollar as a negative anyway. May even give a kick to the people who really need it (farming, mining, manufacturing, exporters i.e. the productive economy). Of course foreign lenders will pull out but that’s also a good thing – don’t understand why we need “foreign capital” anyway and it could be supplemented by other means.

      • don’t understand why we need “foreign capital” anyway

        Me too. This is often asserted but never explained to my satisfaction.

      • Without foreign capital our banks could not have expanded their balance sheets to the extent they have done. It’s that simple.

        Money may be created out of thin air (credit) but capital is real and needs to be sourced from somewhere. House prices would be a fraction of what they are now if banks only had access to a local capital pool.

      • Dominic – that is certifiable bull crap, I know that much.

        Bank borrowings may well have come from offshore in recent decades, but bank CAPITAL (I.e equity raised as share capita + retained earnings) hasn’t and hasn’t needed to. It is tiny in comparison to the borrowings.

        Next theory?

  2. Just trying to shift the blame for hunkering down. At the moment banks are just refusing to take on new bad risks. next step a la BankWest in 2008 is to jettison existing bad risks.

    Be very careful going forwards about late payments to anyone who has a charge over your assets, they will sell you up at the drop of a hat to get something in before it really hits the Fan

    Don’t be too sure about real bail-outs, the RBA might have other fish to fry by then

      • “Tell me the difference between stupid and illegal and I’ll have my wife’s brother arrested”

      • Trillionaires and masters of fake money are not stupid – sorry to inform you that the game is rigged, it’s a bit like finding out Santa Clause does not exist isn’t it? xox

  3. South32 chairman David Crawford and financial services chief executive Ahmed Fahour

    So that’s where that odious twerp ended up. Wonder if he’s still donating to that museum with his own money. Wonder if his brother still works there.

      • His super was huger at 14% of final average salary times years of service, which was about 6 or 7. And he promptly closed the scheme behind him for actual workers in future.

    • Fahour and his family have made significant financial contributions to the Islamic Museum of Australia, the founder and director of which is his brother, Moustafa Fahour, a former Macquarie Bank executive. His sister, MasterChef participant Samira El Khafir, is the head chef and manages the cafe on site.[6] Moustafa’s wife, Maysaa, is the chairwoman and director.

      Fahour is married to Dionnie and has four children.[5] He has four brothers and three sisters.[8]

  4. AUD got 67 yesterday. If we print it will go to to 37.
    Let’s face if our beloved country is fucked . Not just economically but morally bankrupt also.

      • And morally ? Will the bust close the massage parlours and end farm/cafe slavery, visa rorts see bankers serving time at long bay for stealing from the dead .
        I doubt it . The elites will double down into even more odious practices .

      • I would be interested in how MB sees the good path out of this bubble. Especially since I see the most affected being “young affluent professionals” in Gen X and Y in the case of a housing market crash who bought their first house more recently as evidenced by the mortgage stress data published. Baby boomers and older typically bought earlier, have much larger equity cushions and typically have paid off more of their loan balances.

      • AK – the prescription has been to “lower teh rates” coupled with MPLOL.

        i Can’t see how it can work to rescue recent entrants from a good crash. Which is good. I want them to burn.

    • Aud wont be that low, Aus has everything thing the world needs…good doomsday prepper country…just got to greedy with easy money…a million$ will go back to being what it was 20 years ago, not something people scoff at…

      • The first bit is right – won’t go that low, for the reasons you give.

        Whether a million will be worth a million again (or just worth a shiitty 2-bed skykennel) – I’m not sure.

      • Lotteries are classic indicator, sales volumes have drop over last 15 years when 1 mill offered as prize money…when they increase again it basically shows you how people are valuing money…

  5. Fahour
    I can’t believe he gets air time
    He’s a disgrace
    Some of the others are in a large land owning company
    If land gets cheap enough josh should build.a big jail to put himself and all of above as well as all the other politicians

  6. Noticed. Big move in euro bonds
    Selling out of Spain and Italy into German bunds
    Italy 10 year up 20 bp

  7. “Prospective borrowers are being squeezed on how much they spend on the weekly kebab run” – yes thats how Domainfax characterised the new lending regime in an article bemoaning the dangers of a credit crunch yesterday. Its deliberate issue minimisation, much like when population pressures in big cities were reduced by Turnbull to not being able to find a seat on public transport

  8. I will enjoy watching the spivs eat each other as it all falls apart. Burn you greedy criminal fvks burn.

  9. … AUSTRALIA: Do they know what ‘affordability’ is for various dwelling types … and therefore what responsible lending should be ? …

    Apple crumbles; S&P500 drops -2%; US data weak; China adds more stimulus; new Italy bank crisis; Google outed on tax; Aussie credit crunch worsens; UST 10yr 2.59%; oil lower, gold up; NZ$1 = 66.9 USc; TWI-5 = 71.3 | interest.co.nz

    … Why are they failing to be clear on what ‘affordability’ is for various dwelling types … and therefore what responsible lending should be ? …

    Definition of an Affordable Housing Market & Affordability Guide – Various Dwelling Types … Performance Urban Planning

    … What was learned from the Irish ’07 experience … and following extensive research by the Central Bank of Ireland the imposition of a sensible general mortgage cap of 3.5 times annual household incomes ? …note comments on this MacroBusiness Australia thread …


    • Hi Hugh, it’s all criminal – unfortunately it doesn’t matter what is right such as income multiplier lending restrictions. There is no rule of law any more which means the end is nigh.

    • reusachtigeMEMBER

      Yep, there’s some seriously great buying opportunities. Now is by far the best time to buy and a lot of people are soon going to find themselves priced out of the market if they don’t buy now.

  10. reusachtigeMEMBER

    “Only one thing can fix that. Cheaper credit to shift expectations back to price inflation. The RBA is going to cut. ”
    Lower teh interest rates, that will fix thing!

    • I said the other day the solution to having too much debt is MOAR debt but at a lower price! Lower teh rates now!

  11. Can I ask, what are people’s thoughts on preserving value for QE? That would suggest that assets would go up in value.. are we talking housing as assets or shares in companies? What has been the experience in US?

      • He is saying buy Australian Government Bonds.

        Because when interest rates drop/currency gets devalued (ie QE), bond prices will rise.

        He is also saying that the government is expecting to be borrowing less and less and eventually have a budget surplus and start paying down debt, so there might be a bond shortage.

        My thinking is:
        1. US government bonds might be a better play hat AU gov bonds as we wait for Au to hit QE/zero rates/devaluation
        2. I don’t buy the “shortage” of bonds idea.

  12. proofreadersMEMBER

    “The RBA is going to cut. My guess is March after it slashes forecasts in the February SoMP and then again in June, book-ending the election campaign.”

    The irresponsible RBA – as always, the one-trick pony giving it up the anus to savers.

    • After years of having their charter watered down and the appointment of political stooges, cutting interest rates is all the RBA’s left with. That said, any cut will be negatory given we borrow most of our money offshore, expect funding costs to increase with risk and a declining currency value.

  13. “shadow treasurer Chris Bowen has the backbone and smarts to push the reform through for mid-2020”
    Except for the spine dissolving slime on the government benches in parliament that seems to cause all backbone toting politicians in opposition to turn into spineless jellyfish upon obtaining power.

  14. – The RBA will indeed cut but only because market forces are lowering rates. And the RBA will follow.

  15. By next election, less than half of voters will own a house. Do the majority of voters, who aren’t homeowners actually want ever growing house prices?

    (HILDA 2016 showed that 51.7% of over 18s owned a house in 2014, with the rate falling 2 percentage points per year in the 3 years prior. I’d conjecture that that trend has slowed a little, but broadly continued. HILDA 2018 gives the proportion of the population renting at 31%, with the remainder living with a homeowning relative or friend)

    • kiwikarynMEMBER

      Dont forget to remove the 600k Kiwis who live in Australia who probably own houses but can’t vote, along with another few million house owning non-citizen residents.

  16. But no amount of Gypsy Water and aftershave will cover the smell of the dog shit stuck to his shoe. With every step Josh leaves a tar-yellow footprint that will follow him to the end of his political life.

    Josh Frydenberg, the gelding from Kooyong, will be praying that no one will notice.

    • Recent polling shows Josh might even lose his seat at the next election.

      I don’t think there will be many who will shed a tear.

  17. I have a great idea of how our well-paid elites can save the economy. That will be good for banks, politicians, cronies, developers and of course by extension good for the public:

    The RBA should provide a “house borrowing bonus” for any qualified borrow who borrows to buy high-priced housing. It would work like this. The potential borrower goes to a bank and applies for a loan. The bank must meet responsible lending standards and as such may lend 8 times the borrowers income for housing. This is clearly not enough to sustain house prices.
    Step in the RBA. The RBA prints fresh new “supplementary currency”. These are cash dollars issued by the RBA for the express purpose of boosting the economy via addition lending for housing assets. The new cash dollars are printed and stamped “may only be used for buying housing”.
    By this method the economy is boosted in many ways:
    * responsible lending occurs and repayment is not at risk
    * housing prices are maintained and boosted
    * bogans cannot spend the extra money on beer and drugs because it is stamped “may only be used for buying housing”
    * general price inflation will not occur, excluding the ongoing wealth effect from housing.
    * negative gearing can stay
    * They can borrow more money and rebuild that cracky tower

  18. A falling AUD radically increases the cost of overseas borrowing so rate cutting by RBA will still have the effect of pushing up borrowing costs for the banks, who will pass those costs on to their captive homeowners. Check mate!

  19. – Seems the politicians in Canberra are VERY well aware of what’s going on in the REAL economy.

  20. So we kicked the van down the road in the GFC and then rode the global uplift (just nowhere near as good as those who had an economic recession reset) so here we are having a recession that we have to have, and our economic gurus haven’t contemplated this ….
    so where to from here? Pain for the borrower and pain for the lender … bunker down don’t rush in yet