Irvine: Somebody needs to be responsible for house prices

When MB first proposed macroprudential policy tools for Australia in 2011, we were looked at like we were from Mars. Unfortunately, that’s how monetary regulators behaved as well. Instead of tightening macroprudential policy from the outset as they slashed interest rates, the RBA and APRA treated them with absolute scorn.

The rest is history with another blowoff in the property market ending in exactly what we had called for all along, macroprudential tools, deployed in 2015 and 2017.

Since then, we have waited hopefully for the moment when it would dawn on the Coalition Government that Australia’s monetary management regime was broken.  It needed a major inquiry into how various bodies were using various tools to manage the flow of credit. Some at cross-purposes.

Instead, such a sensible outcome was buried under the avalanche of shit known as the Hayne Royal Commission, which exposed corruption across the mortgage sector, impugned APRA as utterly useless, and left the RBA looking like a buffoon. Yet no accountability came to either regulator and, indeed, both went back to whoring for credit growth with such urgency that it was as if none of it ever even happened.

And so, here we are again, in the Groundhog Day that is Australia’s political economy, with flying property prices gobbling up all of the virus monetary easings, and nowhere near enough directed instead into a lower currency to ensure competitiveness and tradables drive the bulk of the rebound.

Jess Irvine today makes the sensible point that there is no captain of this careening ship:

  • The Wallis Inquiry puts APRA in charge of macroprudential policy.
  • But it’s only goal is financial stability not house prices.
  • So, the RBA gets dragged with rate hikes calls.
  • No regulator now has responsibility for prices.

Sure, the RBA and APRA talk through the Council of Financial Regulators and they say that they are closely monitoring lending standards.

But how is the APRA mandate combining with that of the RBA? Without having explicit guidance for both or, even better, putting them under one roof, then it all just comes down to discretion not only on what to do but what they are aiming to do.

This makes absolutely no sense in terms of governance, market clarity nor efficacy.

But let’s not stand on ceremony here. This is not by accident. What this opaque regime does do is guarantee diffused responsibility so that the Morrison Government’s realty nutters can pull whatever rein they like to keep prices going up without the fear that somebody in authority will call them out directly for doing so.

As in so many cases with this government, this is a personality disorder made into policy structure that enables chosen mates to laugh all the way to the bank while the losers cop a deluge of fake care and gaslighting.

In short, that nobody is responsible for house prices is a feature not a bug of the Morrison Government.

David Llewellyn-Smith
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  1. pfh007.comMEMBER

    “..In short, that nobody is responsible for house prices is a feature not a bug of the Morrison Government…”

    It’s a feature of our public monetary system.

    It is specifically structured around private bank credit and that is specifically structured around house prices.

    You can’t unwind the house price ponzi without fixing the structure of the public monetary system and that starts by increasing the role of the RBA balance sheet and the best and easiest way of doing that is by allowing non banks to operate accounts at the RBA.

    If you don’t want to address that then you might as well wish for unicorns to win the Melbourne cup.

    Compared to the other reform projects we hear so much about this is low hanging fruit.

    • Jumping jack flash


      See comment below.
      It is easy to fix the system, at its heart is asset price inflation from debt, which in turn enables additional debt to be created to inflate asset prices with.

      The valuation system is fundamentally broken. If an objective valuation was performed, and distinct valuation criteria and standards are defined and followed, it would quickly stop the debt engine.

  2. happy valleyMEMBER

    MP is not the RBA’s responsibility so they can merrily stoke the low interest rate rocket and will continue to do so in sheer self-interest whereas APRA whose responsibility MP is, is too compromised/useless to enact any meaningful MP.

  3. “they are closely monitoring lending standards” – BWAHAHAHAHAHHAHAHHAHAHAHHAHA

    • A standard implies a certain level of attainment. Objectively it may be very low compared to expectation, but if that’s the standard they set & monitor against…technically accurate, objectively sh1te.

    • I’m gonna print that and stick it to my fridge using a plumbers magnet. It will help me feel better at night.

  4. Looks like even the free loaders have left MB, rather surprised to see only a handful of comments on a free article1

  5. RE Pessimist: Perhaps its because investing has nothing to do with careful analysis and management any more. Perhaps its because more people are becoming aware that all investing is now completely correlated with Magic Money, hence Bitcoin, Old wooden shacks in Auckland gone up $100K in a month, Nasdaq at all time high in the middle of what should be called a massive recession. House prices roaring in Aus is a given. There are no fundamentals at work unless you apply them to unemployment numbers and poverty. The rest is purely government policy. Thoughtful articles mean jack sh*t anymore. 20 years ago I thought for sure the government (was in London at the time) would put a stop to house price mania on account of Gordon Brown telling us ‘No more boom and bust’ but if I had followed the crowds I would have been far better off than I am today. Same with bitcoin when I could have gotten in for penny’s. and so on.

    • PalimpsestMEMBER

      I hate to agree, but pretty hard to argue against. For investors these are centuries old indicators of ‘the top’ blow out, but it’s been like this for too long, so who knows where to from here. The Wall Street Bets Reddit where members pour scorn on those investors reluctant to risk it all, where get rich or go bust has the obvious result for most members (they go bust), would normally be the biggest red flag there is. The feedback loops have broken down. Capitalism with ‘socialism for the wealthy’ tendencies.

  6. two plus twoMEMBER

    Seems to be no end of responsibility if it looks like prices might go down though… (ZIRP, cheap bank funding, fiscal subsidies etc etc.)

  7. Jumping jack flash

    The idea that anyone is responsible for house prices is absurd!
    Houses are a market. Do we want regulation now? A command economy? Debt is the banks’ product, will there be production controls and quotas now? It all sounds very damaging to growth.

    The real feature of the New Economy is that house values can rise without any improvement in utility. A far more objective valuation system is required rather than: squirt some debt in and watch the prices rise in response.

    This is the reason houses are such a favourable hook to attach debt to. If houses didn’t behave the way they did with regards to valuation, then the banks would have a serious problem getting their system of perpetual debt to work. They’d need to find something else as ubiquitous as houses as responsive to debt, and there’s not much.

    They’ll have a hard time trying to get the horses back in the gate. The banks designed a fantastic system, on purpose or by accident, or probably both, and people are happy with the way things are. It’ll be hard sell to everyone involved to change it now.