Low demand key to housing woes: RBA

A LACK of demand is the main reason for the weak housing market and sluggish credit growth, not a crackdown on loose lending standards, a Reserve Bank official says.

And the slide in investment in the housing construction sector is likely to weigh heavily on growth in the Australian economy, deputy governor Guy Debelle says.

Speaking at a business conference yesterday, Dr Debelle said weakness in demand from would-be homebuyers was “primarily” behind the slump in credit growth and lacklustre conditions in the housing market.

“My main argument is that the slowdown in housing credit growth to households has primarily reflected the housing cycle rather than driven it,” Dr Debelle said.

“That is, the slowdown in credit growth is primarily a demand story rather than a supply story.

“Yes, there was a tightening in lending standards from 2014 onwards. But through the first part of this, housing lending continued to grow at a fast pace. “There was some further tightening over 2018 following the (banking) royal commission … but the bulk of the tightening had preceded that.”

Dr Debelle noted growth in lending to property buyers “started to slow materially in mid-2017”.

“Investor demand has slowed to such an extent that the stock of outstanding credit to investors has actually fallen in recent months,” he said.

“In my view this is primarily a decrease in investor demand given falling housing prices, more than the impact of tighter lending conditions.”

Federal Treasurer Josh Frydenberg last month urged regulators not to enforce responsible lending laws “too stringently” after a campaign from the banking sector that raised concerns the law was unnecessarily restricting credit and harming the economy.

MPs have raised concerns that a decision by the Australian Securities and Investments Commission to appeal after it lost a court case against Westpac over responsible lending is adding to uncertainty. Dr Debelle said yesterday that there was “a sizeable downturn in construction under way”.

“We are forecasting a further 7 per cent decline in dwelling investment over the next year, and there is some risk the decline could be even larger,” he said. Dr Debelle said that would weigh on economic growth, as measured by gross domestic product.

Australia’s GDP grew 1.4 per cent, seasonally adjusted, in the year to June — the weakest rate since the global financial crisis.