Bad publicity and headline-grabbing fines aren’t to blame.
David Fickling
4 June 2018
The greater risk to Australia’s banks lurks not in the papers of regulators and inquisitors, but on the streets of the country’s sprawling suburbs.
As we’ve argued before, the most ominous indicator to watch is also a favorite one of the Reserve Bank of Australia. Rents, as measured by the country’s statistics bureau, have been increasing at less than 1 percent for nine consecutive quarters , the worst performance for the measure since the housing crash of the early 1990s.
There’s a simple reason for that: Australia is finally building enough dwellings to contain its growing population. After years of undersupply, housing starts outpaced household formation in each of the past five years and will hold more or less level this year and next. That will leave the country with about 164,000 surplus dwellings relative to 2012 when the most recent slump reached rock bottom, equivalent to about a year’s supply.
In the past, episodes of such generous housing supply have tended to coincide with periods when mortgage credit was widely available too. That’s meant that the easy availability of loans has allowed the market to keep on its headlong pace of growth – but this time is different.
Thanks to a crackdown on credit standards by the Australian Prudential Regulation Authority, lending is expanding at the slowest pace in years. Across the Big Four banks, the value of owner-occupied and investor home loans rose at an annual pace of just 4.8 percent in April, the only month in data going back 13 years where it failed to crack 5 percent.
The effects are showing up already. In Sydney, house prices slid 3.4 percent year-on-yearin April. In more exclusive suburbs, the falls are as deep as 10 percent, according to Business Insider. The share of houses sold at auction last weekend is heading toward the 50 percent levels typically considered to herald a downturn, according to the Australian Financial Review.
That, rather than bad publicity and headline-grabbing fines, is the real reason Australia’s great banking boom is over. The housing phenomenon that’s sustained profits for a generation is sputtering out, and with interest rates on the country’s hefty household debt piles forecast to start rising toward the end of this year, the worst may be yet to come.
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