Toy Houses With Upwards Growth Arrow In Front Of A Net

APRA’s market manipulation will only hasten the next property boom

We’ve heard a lot of talk recently around APRA’s moves to tighten regulations around property lending, with many people expecting the changes to decrease property prices in markets like Sydney, where prices are high and still increasing. The Sydney property market, they argue, is in a ‘bubble’ caused by over-enthusiastic investment – and if the rate of investment isn’t slowed to allow property prices to decrease, the bubble will burst and property prices in Sydney will drop dramatically.

What is APRA trying to achieve?

The Australian Prudential Regulation Authority (APRA) restricted lending criteria earlier in the year. There is talk of further changes to lending criteria, such as increasing the minimum deposit required before a borrower can get a mortgage. According to APRA, these measures are designed to slow the growth of lending to property investors: it has been increasing annually by around 21%, well above their 10% benchmark. Changes made thus far have slowed property investment lending growth somewhat.

Is there a ‘bubble’ in the Sydney property market?

Sydney is a popular place to live and, especially, work. As the population of Sydney increases, its housing needs grow. We don’t think that the increasing demand for property in Sydney is fuelled by investors at all – we think it’s fuelled primarily by Sydney’s ever-increasing population. The current fears around a property ‘bubble’ echo similar claims during Sydney’s last property boom in 2001-2003. Doomsayers then predicted that property prices would fall a massive 50-70% when the ‘bubble’ burst. However, the worst that happened was that in a few markets – like the Gold Coast – prices for units dropped 10-20%. Property prices in Sydney simply plateaued for a few years. We don’t see demand for Sydney property dropping significantly any time soon, so it’s highly unlikely that property prices will drop significantly either.

What effect will the changes have on the property market?

While changes to investment spending may affect housing prices slightly, we can’t see that fewer property investment loans will decrease property prices in the longer term. In fact, it’s more likely that the exact opposite will happen: that the restrictions on investment will actually bring about a property boom and increase property prices over the next few years. How? We expect the recent changes to affect the market in two ways:

  • Decrease supply: Limit the number of new properties on the market, as fewer investors equals fewer property developments.
  • Increase demand: Decrease the number of rental properties coming into the market, which is likely to push many people from the rental market into the home-buyer market.


Before APRA made changes to lending requirements, we’d expected to see another 12 months of growth in the Sydney property market, followed by a plateau. If it does in fact put all of its proposed changes into place, then we expect to see the market cool a bit sooner – but for prices to start rising sooner, thanks to the decreased supply of new properties and rental properties coming onto the market.