IMF urges Australia to deploy lending curbs to address hot housing market

The International Monetary Fund (IMF) has advised Australia to deploy lending curbs to cool its red-hot housing market.

IMF said: “Surging housing prices raise concerns about affordability and financial stability. Macroprudential measures should be employed to address incipient risks.”

Options include increasing interest serviceability buffers and “instituting portfolio restrictions” on debt-to-income and loan-to-value ratios, it said in the report released Friday.

Australia’s property market is surging even as Sydney and Melbourne are in extended lockdown due to an outbreak of the delta variant of the coronavirus that’s set to push the economy into contraction this quarter.

The IMF lowered its forecast for economic growth this year to 3.5% -reflecting the east coast lockdowns and boosted to 4.1% its estimate for 2022, as a recovery is expected once restrictions are lifted. That compared with an estimate in April when Australia was almost Covid-free and rebounding strongly of 4.5% growth this year and 2.8% next year.

In the statement, the IMF also forecast underlying inflation would reach 2% by the end of 2022 and remain within the RBA’s 2%-3% target range thereafter.

The IMF urged Australia to reduce its relatively high direct taxes and instead strengthen indirect taxes, by reducing the corporate income tax burden and relying more on goods and services tax revenue. In the same vein, they urged the government to set a “time-bound net-zero emissions target,” noting that while politically challenging, carbon pricing, along with measures to mitigate transition risks for industries, would be the most effective way to cut emissions and spur investments.