IMF concerned about rising housing prices
Surging housing prices in Australia raise concerns about affordability and financial stability, according to the International Monetary Fund (IMF).
Structural reforms to boost housing supply and targeted support for low-income households are needed to improve housing affordability, IMF staff say in a new report.
The IMF believes macroprudential policy in Australia should be tightened to address gradually rising financial stability risks.
“While the surge in housing prices has been driven largely by owner-occupiers taking advantage of low mortgage rates and fiscal support programs, high debt-to-income mortgages are on the rise amid elevated household debt, and investor demand has begun to increase from low levels,” it notes.
“Lending standards should be monitored closely and macroprudential measures should be employed to address incipient risks. Options include increasing interest serviceability buffers and instituting portfolio restrictions on debt-to-income and loan-to-value ratios.”
The IMF adds that housing supply reforms would help support affordability. Supply-side reforms, including more efficient planning, zoning, and better infrastructure, could improve housing supply.
“Commonwealth and state/territory governments should consider providing more financial incentives for local governments to streamline zoning regulations and improve infrastructure,” it says.
“Promoting flexible work arrangements could allow workers to move away from capital cities, improving affordability. In addition, governments should focus on providing targeted fiscal support for low-income households and expand social housing.”
The IMF also believes that Australia’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework should be further strengthened by expanding coverage to relevant non-financial and business professionals.
In addition, it says an integrated framework for climate change policies could reduce uncertainty and catalyze environmentally friendly investment.
Australia has made progress in reducing greenhouse gas emissions, but the IMF says if Australia were to follow other countries in setting a time-bound net-zero emissions target, this would require faster progress within a comprehensive policy framework.
“While politically challenging, implementing broad-based carbon pricing, along with measures to mitigate transition risks for impacted industries and regions, would be the most effective way to achieve emissions reductions and complement the investment strategy,” the IMF says.