Morrison says apartment market turning, APRA controls on lending taking effect

Days before the Federal Budget in which Treasurer Scott Morrison is expected to announce housing affordability measures, the Treasurer has said that the apartment market has peaked and regulatory controls on investor lending are working.

"The apartment market is already turning," Morrison said in a pre-budget interview with The Australian Financial Review. "To the extent that we're going to have a landing in the Sydney housing market depends on a lot of the choices we make over the next little while."

His comments came a day after property analytics firm CoreLogic said dwelling values increased by just 0.1% across the combined capital cities in April, with housing market conditions slowing in both Sydney and Melbourne.

Corelogic’s head of Research, Tim Lawless noted that the April results mark the weakest monthly change in dwelling values across the Sydney market since December 2015, when CoreLogic reported a 1.2 percent fall in Sydney dwelling values. 

But at the same time, he advised caution, saying “We need to be cautious in calling a peak in the market after only one month of soft results.”

Morrison, however, was more upbeat and took a swipe at Labor, saying further measures such as cutting negative gearing or capital gains tax breaks as the opposition party proposes could risk crashing a market that is already slowing. 

"Labor's approach would give us a hard landing, potentially a crash landing. We're obviously going for a much more smooth process and that means you don't do things which potentially overreact, over-respond,” he told the AFR.

Emphasising the effect of APRA's tighter credit rules on property lending, Morrison sought to play down expectations of federal government intervention to improve housing affordability. 

Morrison said any changes to tax breaks were "enormously complex”. 

Labor is pushing for the curbs on investor demand and said last month it would bar SMSF borrowing to invest in property.

The property industry opposes any change to SMSF property tax breaks.  

Morrison, however, also rejected the idea that Howard-era changes making it easier for super funds to invest in property had stimulated demand.

"Bricks and mortar was already encouraged," Morrison said. "The thing about it, you've had Sydney house prices rise by 18 per cent. Who was getting 18 per cent in their self-managed super fund? It commends itself."

Tighter regulator-driven curbs on lending to foreign buyers had also slowed the apartment market, he said.

CoreLogic said Sydney units fell 1.2 per cent in value in April while houses gained just 0.2 per cent. Apartment values in the nation's second city, Melbourne, fell 0.9 per cent while detached houses gained 0.6 per cent. 

"You talk to developers in this city and they'll tell you," Morrison said. "At the moment you wouldn't get finance on a development that was expecting more than a quarter or even a third of the sales to go to foreign investors."

Morrison did say, however, housing affordability – particularly for renters – was necessary as this would reduce the country's growing social welfare bill in the long run.

"If you want to get your welfare budget under control then get young people into a job, get homeless people into a house, get people on low income into a rent that they can afford and not get kicked out of a house every six months and their kids have to change schools every time. If you want to deal with a welfare budget, deal with that," he said.