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The federal government has dismissed fears that Australia is at risk of a US-style sub-prime crisis but welcomed talk around new lending rules.
Kelly O’Dwyer told ABC television that it is “always prudent” to review lending rules, after the Reserve Bank of Australia flagged that it might introduce new regulation to cool the property market.
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Ms O’Dwyer chairs the House of Representatives Standing Committee on Economics, which has oversight of the Reserve Bank of Australia.
She said it was wrong to compare the Australian banking environment with the sort of lending that triggered the sub-prime crisis.
“We have a very strongly regulated prudential market, we have a strong banking sector and we have strong risk assessments that apply to people who are taking out loans,” Ms O’Dwyer said.
“We certainly don't have the sort of loans that we saw with Fannie Mae and Freddie Mac, where people were able to basically get loans they couldn't afford to pay back, and when they got into financial trouble, simply walk away.”
Housing Industry Association chief economist Harley Dale warned the Reserve Bank to be wary of tightening lending rules due to negative consequences he claimed had occurred when New Zealand resorted to ‘macroprudential tools’.
“I think we saw that had quite a rapid pushback, a detrimental impact in terms of having an effect on first home buyers, who of course are a lot more reliant generally on debt financing than are investors,” he told ABC television.
“To get a macroprudential tool right, where you just happened to be getting the outcomes you desire towards investors in two capital cities [Sydney and Melbourne] in relation to a particular product – that's a pretty fine target to get right.”
Bank of America Merrill Lynch chief economist Saul Eslake said ending negative gearing would be a better response than introducing macroprudential tools.
[Related: New Zealand turns to macroprudential tools]
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