The elephant in the room as far as housing affordability is concerned is NOT negative gearing, interest only loans, stamp duty or foreign investors. It’s the effect of decades of regulation of capital and liquidity which means that banks favour mortgages over every other asset class.
This has skewed the lending mix of banks from corporate, business, SME and personal lending to mortgages, with cheap money playing a significant part in pushing up house prices by increasing the demand side of the equation.
APRA’s capital and liquidity rules also favour large, so-called ‘advanced’ banks over the smaller or regional banks and the credit unions and building societies.
And government decisions re takeovers have reduced competition in the banking sector, which further disadvantages business/SME lending at the expense of mortgages.
So, instead of putting the blame at the feet of negative gearing and overseas investors, government and its regulator, APRA, can look to their own regulatory policies which have made a significant contribution to the problem.
Now that this issue has been raised at the AFR banking and wealth summit it will be interesting to see how far government and the regulator are prepared to go to address the imbalance that they caused. Unfortunately, this could well be painful.