Australia should do more to contain housing bubble, climate change-IMF

Reuters

Published Sep 23, 2021 09:38PM ET

SYDNEY (Reuters) - Australian authorities need to tighten home loan standards to cool a red-hot housing market and reduce risks to the financial system, the IMF warned on Friday, while also calling for more action on climate change.

In its regular assessment of Australia, the International Monetary Fund (IMF) cautioned that monetary and fiscal policy need to remain stimulative to support the economy through a tough period of coronavirus lockdowns.

However, record-low interest rates have driven a surge in house prices and borrowing that needs to be contained, the IMF said.

"Surging housing prices raise concerns about affordability and financial stability," the IMF said. "Macroprudential policy should be tightened and lending standards closely monitored."

Options touted included increasing interest serviceability buffers and restrictions on how much banks can lend to borrowers with high debt-to-income and loan-to-value ratios.

Longer term, supply-side reforms were needed including more efficient planning, zoning and infrastructure. The IMF also urged governments to provide fiscal support for low-income households and to build more social housing.

On climate change, the IMF called on Australia to set a "time-bound" target to reach net zero remissions.

"This would require faster progress," the IMF said. "While politically challenging, implementing broad-based carbon pricing, along with measures to mitigate transition risks for impacted industries and regions, would be the most effective way to achieve emissions reductions."

Treasurer Josh Frydenberg is due to give a speech on Friday arguing that Australia would face higher borrowing costs if the country fails to match other developed nations in efforts to cut carbon emissions to net zero by 2050.