Australia Should Do More to Contain the Housing Bubble and Climate Change – IMF

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 calling for more action on climate change.

In its regular assessment of Australia, the International Monetary Fund (IMF) warned that monetary and fiscal policies must remain stimulative to support the economy during a troubled period of coronavirus lockdowns.

However, record low interest rates have spurred house prices and borrowing spikes that need to be curbed, the IMF said.

“Rising house prices raise concerns about affordability and financial stability,” said the IMF. “Macroprudential policies should be tightened and lending standards closely monitored.”

Options touted included increasing the interest buffers and restricting how much banks can lend to borrowers with high debt and loan-to-value ratios.

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

Regarding climate change, the IMF urged Australia to set a “time-bound” target to achieve net zero remissions.

“This would require faster progress,” said the IMF. “The implementation of broad-based CO2 pricing together with measures to reduce the transition risks for the industries and regions affected would be politically challenging, but the most effective way to achieve emission reductions.”

Treasurer Josh Frydenberg will give a speech on Friday arguing that Australia would face higher borrowing costs if the country cannot compete with other developed nations in efforts to reduce carbon emissions to zero by 2050.

On the economic side, the IMF assessed short-term risks as adverse as Australia struggles to contain the Delta variant, but recent advances in vaccinations should allow restrictions to be relaxed and a recovery in the December quarter.

The agency forecasts economic growth of 3.5% for 2021 and 4.1% for 2022.

(Reporting by Wayne Cole; Editing by Richard Pullin)