Reserve Bank of Australia Passes the Baton for Tightening Home Loan Policy to Government and Regulators

An auctioneer counts down a bid during an auction of a residential property in Sydney, Australia, on May 8, 2021. Lisa Maree Williams/Getty Images

The Reserve Bank of Australia (RBA) has clearly distanced itself from the responsibility to control residential housing prices, passing it onto the government and industry regulators.

In an online address, RBA governor Philip Lowe said that raising interest rates would address house price concerns at the expense of other areas of the economy.

“I want to be clear that this is not on our agenda,” Lowe said. “While it is true that higher interest rates would, all else equal, see lower housing prices, they would also mean fewer jobs and lower wages growth.”

“This is a poor trade-off in the current circumstances.”

He said the central bank was watching the property market closely with the Council of Financial Regulators and discussing possible regulations once lending standards fall or credit growth accelerates too fast.

“While monetary policy is contributing to higher housing prices at the moment, the way to address these concerns is through the structural factors that influence the value of the land upon which our dwellings are built,” Lowe said.

Reserve Bank of Australia Governor Philip Lowe sits at a parliamentary economics committee hearing in Sydney, Australia, on Sept. 22, 2016. Peter Parks/AFP via Getty Images

Structural factors include the tax and social security system, planning and zoning restrictions, and type of dwellings that are being built.

“These are all obviously areas outside the domain of monetary policy and the central bank,” Lowe said, dissociating the RBA from responsibility for housing regulation.

“Our job is to achieve the inflation target and support the return to full employment in Australia,” he said.

The Australian property market skyrocketed by 18.4 percent over the last 12 months after the RBA reduced the cash rate to 0.1 percent in November.

The RBA has since maintained the low cash rate despite pressure from the property industry, making the same note of property prices in numerous statements—that the bank would keep a close eye on the market and maintain low interest rates for the rest of the economy.

Property researcher CoreLogic believes future policies on the housing market will likely focus on debt accrual in households rather than policies targeting investment or interest-only lending that the industry saw in 2015 and 2017.

“The speed of net investment credit growth has increased, but remains below average, and has in fact trended lower over the two months to July,” CoreLogic research director Tim Lawless said. “On the other hand, owner occupier credit growth has been trending higher since June 2020 and has remained above the decade average since November last year.”

The comments by the RBA come after the New Zealand government put a stop to the country’s surging property market by implementing a series of policies, including hitting investor income through taxes in March.