Tougher home lending conditions in WA would be irresponsible

Following comments from the Reserve Bank of Australia (RBA) last month that there had been a ‘build-up of risks associated with the housing market’, conjecture has turned to whether the Australian Prudential Regulatory Association (APRA) would step in to take the sting out of the national property market by tightening lending conditions for existing home owners, first home buyers and investors.

These comments from the RBA are largely in response to the Sydney and Melbourne property markets, where sales activity remains hot and house prices continue to rise. While there may be some merit in applying tougher rules in these markets, placing blanket lending restrictions across all states and territories is the wrong policy response.

The negative impact on WA

Western Australia’s economy and property market has faced its fair share of challenges over the last couple of years. Since the highs of the ‘mining and population boom’ and its subsequent slow-down, real estate prices in WA have softened considerably with sales activity halving over the last decade. Any knee-jerk reactions to enforce new lending restrictions would have a significant detrimental effect on our local property market which is just starting to show signs of stabilisation.

It would also have a negative effect on housing affordability in WA, which remains a legitimate concern for many West Aussies despite record low interest rates and favourable buying and renting conditions.

Even if regulations are only applied to investors, it would still impact on housing affordability in WA. Currently, lending finance for investment makes up 35 per cent of all lending in the state – a substantial proportion of our market. If, as a result of tightening regulations, banks choose to increase borrowing costs for investors, this would leave landlords with no choice but to pass the additional costs on to tenants.

Banks need to be cautious

When trying to manage lending criteria, the banks need to be mindful that any increase to lending rates will likely cause the WA property market to cool further. Unlike Sydney and Melbourne, WA has experienced a correction in property prices recently.

Implementing any further restrictions on lending is entirely unnecessary and will do more harm than good in our market. We need to be encouraging home ownership and property investment in WA, not discouraging it by making it more difficult for people to acquire finance.

REIWA has called on new State Treasurer Ben Wyatt to ensure this issue is addressed at a national level. It would be irresponsible for regulators to apply blanket lending restrictions on a national scale without first considering the varied market nuances of each state and territory.