When will APRA tighten macroprudential on property?

The RBNZ has already done so:

New Zealand’s central bank on Wednesday said it would re-impose mortgage curbs next year and work with the government on fixing a housing crisis, reinforcing views that deeper cuts to interest rates into negative territory are now less likely.

The government on Tuesday sent a letter to the Reserve Bank of New Zealand (RBNZ) asking it to consider factoring property prices as part of its policy remit amid broad concerns about housing affordability.

…His comments came as the RBNZ announced the planned re-imposition of mortgage lending curbs, called loan-to-value ratio (LVR) restrictions, by March next year.

The obtuse AFR thinks the RBA will move next:

A 7 per cent rise in house prices next year could be enough to prevent further quantitative easing from the Reserve Bank, some economists have suggested, but others say record state debt and a high Australian dollar mean the central bank will likely expand the program.

…Ben Udy from Capital Economics said a 7 per cent rise in house prices would be enough for the RBA to reconsider its quantitative easing program.

…Others disagree. George Tharenou from UBS said despite better employment growth the jobless rate was still high and that meant the RBA’s inflation target was still a long way off.

“This combined with the RBA’s focus on keeping government borrowing costs low, amid very large budget deficits, we expect the RBA to flag at its February 2021 meeting that it will likely expand QE by an additional $100 billion,” Mr Tharenou said.

7%? Make that 20% before anybody even draws breath. As the RBA recently said, there is no financial stability risk. As well, the question will not be the RBA’s, it will be APRA’s. Just as it has been in NZ, macroprudential tools will tighten first amid the global currency war. More from Westpac:

― The subsequent Q&A off ered additional insights into the Governor’s thinking around housing market risks. He viewed the prospect of ‘excessive froth’ emerging as unlikely, emphasising population dynamics and likely continued caution around borrowing. However, he also noted that if prices and borrowing were to rise too quickly then macro prudential instruments could be eff ective in slowing the rise, citing the experience in 2015 and 2017-18.
― This could well be the situation confronting the Bank in a year or two. Our forecasts have the unemployment rate at 6.3% by the end of 2022, well above anything that might be considered full employment, with other utilisation and wages growth measures also still\ showing a large amount of slack. Policy rates globally are expected to still be stuck at their lower bounds. Even with growth above trend, that would seem to completely rule out an interest rate rise.
― However, at the same time, Australian dwelling prices are expected to have risen 14% over two years. If market optimism, investor activity and borrowing are all starting to take off , a macro prudential response will clearly be the preferred tool to manage the situation.

I see no danger of this happening in 2021. Probably little chance in 2022, either, as iron ore corrects and the China decoupling intensifies.

David Llewellyn-Smith
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  1. Jacinda Ardern has trashed whatever political capital she arrived with only a matter of a few short ‘transformational’ weeks ago.
    It’s gone.
    Those who voted for her with a sense of hope that our political and economic sectors would enter a new period of refreshment will NEVER vote for her again.
    Whatever encouraging articles you may read in Australia that may give you hope that you too will go forwards into a realisation that property speculation is not THE way to make ‘wealth’, and that change for the better is in the air – forget it.
    Jacinda Ardern, like every politician before her since David Lange, and those what will follow, has shown us that she will do NOTHING to upset the status quo. Neither will any of yours.

    • Jumping jack flash

      As many leaders discover, either the hard way or the easy way, it is very difficult to convince the people that after years of instant and easy riches through piles upon piles of someone else’s debt, that it simply isn’t a sustainable thing to do, and we all need to pull our heads in and begin the period of 30 years of painful deflation and deleveraging.

      Saying things like that is wildly unpopular, as you may imagine.
      Nothing is more of a popularity contest than politics.

      Who wants to be the first pollie to put their hand up to break the bad news to their people?

  2. chuckmuscleMEMBER

    I love this. Any sign of wages growth and it’s “whoa, better pull that in, hike rates, skills shortages so increase immigration”. 7% house price growth and it is “no risk to financial stability, no asset bubbles, better keep QE going”.

    Channeling Peachy… macro pru wont happen here because it is in no ones interest, Wayno has intimated as much. Not sure I’d be highlighting the success of the NZ model either, have you seen the chart of house prices over the dutch bro? Deeply negative rates requires policy coordination (I’m very much in favor of this model btw) the likes of which NONE of our institutions as they are currently staffed/constituted have any chance of achieving. A large clean-out of at least the top 2 tiers of management at those organisations would be the least that is required I suspect.

    • Jumping jack flash


      Hopefully they have learned the lesson from 2008. Their system was just starting to work as designed and they all got scared and pulled it.

      Its taken over 10 years and a very fortunate virus crisis to be able to get their first crack at getting things back to 2006.

      That’s my opinion anyway.

    • Financial stability = shelter inflation. The banks collateral is private property to create public money. Nothing to see here, this exhibit is closed, it’s just the way it is, you just want to live too close to the city …

  3. Jumping jack flash

    ” As the RBA recently said, there is no financial stability risk”

    No risk to anything, just more debt to stabilise the existing debt and create the capacity to create more debt, but the key is it has to grow at the correct rate.

    All eyes on debt growth.

    The only danger to their idealised model is a repeat of the slide into the ever-so-slight deflation we’ve had since 2008, where the economy was basically being kept on life-support using wage theft. Wage theft is not an ideal substitute for wage inflation proper. To get the wage inflation it is vital that enough debt is created and at the correct growth rate.

  4. What incentive does APRA have to tighten macroprudential on property. It’s a moot discussion. APRA doesn’t exist to help Australian citizens. Seriously after a decade hail lettuce leaf.