The Cat Is Out Of The Bag

APRA, the Banks, and the RBA have all drastically failed to understand what is happening.

Property prices are going up because there is enormous wealth and population growth, matched against slow-moving local governments on new developments and suburbs. Not to mention the increasing transport log jams that just make being closer to city centres all the more valuable.

Yet, we have people talking of property bubbles and their need to deflate the bubble through policies that just won’t work in any case, the market is the market.

Announcements today by APRA to limit the proportion of mortgage lending to investors to 30%, probably will not work in any case, and if they did it would only mean less rental properties, higher rents, hurting those most vulnerable, and then higher property prices again. Limiting investments will only lead to accelerating price gains, not lower.

Then we have some idiot at the Australian Financial Review that bank raising interest rates is a brave and noble thing to do because it will deflate the property bubble. As I said, there isn’t a property bubble, just higher prices on strong demand in a market short on supply, and secondly higher rates by the bank are purely and nothing else, profit margin driven.

Now, given the banks were supported by the tax-payer in the GFC, in fact Macquarie Bank may not have survived much longer without the taxpayer, there is therefore, a very real social responsibility on the part of the banks to keep interest rates as low as possible. As well as look after their staff and shareholders. All can be achieved.

It is also the case that you do not have a business, unless you have customers. The flood to alternative funding avenues is a function of the banks having mistreated their customers in the past.

So banks need to be twice as wary of raising their prices for money.

The problem is they all seem to act in unison. This is worthy of further investigation, but it is also true that interest rates have now bottomed around the world. The inevitable return to higher levels has already begun. It will not be a fast rise however, due to the new nature of the global economy.

Still, it does not need any hastening by the likes of the Australian Financial Review, saying well done banks for raising rates when the RBA isn’t.

Could it have something to do with the banks advertising spend perhaps?

So we are facing ever sharper property price acceleration, due to the ineptitude of APRA, and rising rentals. Not a bad combination if you are a property investor.

Clifford Bennett