PHOTO: Auckland, New Zealand

Australia’s banking watchdog is expected to step in and cool the rebounding housing market in 2021, after New Zealand’s central bank telegraphed stricter loan rules are needed to arrest the country’s rising house prices.

The Reserve Bank of New Zealand took a step towards curbing rapidly rising house prices on Tuesday, outlining a plan to reinstate loan-to-value ratio restrictions on high-risk lending from March.

Some economists believe it may be only a matter of time before the Australian prudential regulator follows suit.

Independent economist Warren Hogan said his best guess for the Australian housing market next year was a 10 per cent rise.

“I think that the housing market has turned,” he said. Owner-occupiers are driving the market, but “that’s only going to give investors a reason to come in behind them”.

As such, lending standards will need to be tightened in Australia as early as 2021, he speculated, which would mean action from the Australian Prudential Regulation Authority.

“The only policy option to cool a surging housing market is prudential,” Mr Hogan said.

The RBNZ’s move came after Real Estate Institute of New Zealand figures revealed a near-20 per cent rise in median house prices over the year to the end of November. House prices have soared about 90 per cent over the past 10 years.

While the RBNZ has imposed LVR restrictions on lending since 2013, it removed the curbs in April to help the country through the pandemic. At the time there was deep uncertainty about the fate of the economy and the housing market.

Now the RBNZ is rethinking its stance.