What are the solutions to Australia’s housing bubble?

http://www.smh.com.au/business/the-economy/malcolm-turnbull-has-the-medicine-to-fix-the-housing-bubble–he-just-wont-administer-it-20170403-gvcfbu.html

  • Figures produced on Monday (3/04/17) by CoreLogic show that in Sydney and Melbourne residential property prices have gone up 19 per cent and 16 per cent respectively over the past year, and growth across all capital cities is at a seven-year high.
  • Investors now account for 50% of buyers
  • To eliminated negative gearing tax breaks would only affect investors, thus perfectly targeting the source of the problem, but would have negative political consequences for the Coalition government.
  • In late March, the Australian Prudential Regulation Authority (APRA) announced a raft of measures to discourage excessive lending to investors, central to which was increased scrutiny o the number of interest-only loans.
  • APRA chairman Wayne Byres cited the need for banks to recognise ‘the heightened risk in the lending environment, and that their lending standards and practices appropriately respond to these conditions’.-
  • APRA fist acted in 2014 when it placed a cap of 10% on banks growth in lending to investors. The response was to slow the market for about six months to 12 months, after which it began to take off again.
  • ASIC, the corporate regulator, suggested greater surveillance of banks and mortgage brokers to ensure they were engaging in responsible lending and that customers had the ability to service the interest rates on their loans.
  • Banks have responded to the increased risk by increasing interest rate on most types of residential mortgages- including investor loans, interest-only loans, and owner-occupier loans (interest – only and principal and interest)
  • The RBA cut interest rates twice in 2016 – May and August – after Glen Stevens said in a statement, then governor, that ‘the likelihood of lower interest rates exacerbating risks in the housing market has diminished’
  • This has since, unfortunately, exacerbated the housing market but did, however, alleviate the prospect of deflation.
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