IMF sounds alarm on Australia’s rising house prices
The International Monetary Fund (IMF) is calling on Australian regulators to rein in the housing boom, citing risks to the country’s economic stability if growth continues apace.
The comments came at the conclusion of the biannual assessment of Australia’s economy conducted by IMF staff. High among its recommendations was the tightening of macroprudential policy to cool rising prices, increase affordability and avoid the fallout from a potential market correction.
“Surging housing prices raise concerns about affordability and financial stability,” the statement from the Washington D.C.-based financial institution read. “Structural reforms to boost housing supply and targeted support for low-income households are needed.”
Lending standards sound alarms
The IMF noted that the surge in housing prices had been driven largely by owner-occupiers taking advantage of low mortgage rates and fiscal support programs, but that investor demand had begun to increase. The rise of high debt-to-income mortgages amid elevated household debt set off warning bells, with the international body urging scrutiny of current borrowing practices.
“Lending standards should be monitored closely, and macroprudential measures should be employed to address incipient risks,” IMF noted. They recommended Australian regulators consider increasing interest serviceability buffers and instituting portfolio restrictions on debt-to-income and loan-to-value ratios.
Tax reforms
The IMF has generally recommended that Australia transition from a system that relies on relatively high direct taxes and instead strengthen indirect taxes.
When applied to property, the body is in favour of a policy such as the one floated in NSW to replace stamp duty with a more general land tax. Not only would this revenue source be more stable, but it would also serve to promote labour mobility, according to the IMF. It felt this proposal would also be complemented by a reduction of structural tax incentives for property investment.
Addressing the supply squeeze
On the supply side, the IMF urged Australian regulators to look at reforms to foster more efficient planning, zoning, and better infrastructure to improve housing supply.
“Commonwealth and state/territory governments should consider providing more financial incentives for local governments to streamline zoning regulations and improve infrastructure,” the IMF said, and pushed for the promotion of flexible work arrangements to take the housing burden off capital cities.
It also stressed that government bodies needed to focus on providing targeted fiscal support for low-income households and expand social housing.
