Property developer One Living, backed by former Macquarie banker turned investment manager Chris Green’s investment firm, has unveiled plans to bring more institutional capital into housing to help address the national supply crisis.

The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.

It is backing the new One Living business to develop more than 1000 units along the eastern seaboard. The new firm is starting with a development on Mona Vale Road, on the border of Mona Vale and Pymble, in Sydney’s Northern Beaches, with around 140 apartments planned. They are eyeing off more sites across the city.

With cost pressures rising in the industry, One Living’s model is to be a vertically integrated developer-builder, so it can respond directly to the housing gap by removing the cost inefficiencies embedded in traditional residential delivery.

“We are building a platform designed to operate at scale and starting in a market where there’s a clear need for quality, attainable housing,” One Living joint managing director Joseph Scuderi said.

“It’s that missing middle – it’s that attainable end of housing… that’s what most Australians invest into and what Australians can actually afford.”

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="798dfa93-4941-4db6-a696-31e9dc18e81c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.31.50%E2%80%AFPM.png?VersionId=mKBqi5C_DmeiXS.AtJkcR8LQIxqCqmFi" />

GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.

“For its size, sophistication and importance to the community, Australia’s living sector has remained largely under-institutionalised, which represents significant opportunity,” Green said. “GreenPoint identified that gap, assembled the right team, and is backing One Living to build a platform that is aligned to market needs.”

Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.

“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="74a5344a-4b26-4d4a-ada3-056b1220be77" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.32.15%E2%80%AFPM.png?VersionId=vY8hXHO4reBMdO8ZXMWCNtGZJofUPQ3j" />

&nbsp;

One Living will undertake a component of affordable housing in its schemes, which it will own and operate, and it could also run build-to-rent on some sites.

Green praised local policy settings.

“The NSW government is being very supportive, strategic and pragmatic in terms of how do we generate more supply of housing,” he said. “We think it’s actually positive for development and the bit that’s been lacking at that attainable level is that it’s lots of relatively small private developers, whereas we want to create an institutional platform.”

One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.

“The way we will be able to achieve economies of scale is through size,” Green added.

Joel Robinson

One Living enters Sydney's new apartment market with Northern Beaches site acquisition

It's been several years since there's been an opportunity to buy a brand new townhome in Melbourne's coastal suburb of Mordialloc. Even apartment developments in recent times have been few and far between in the area.

Local developer LDS Property identified the gap in new housing, securing a site on White Street, directly opposite&nbsp;Woodlands Golf Club Mordialloc. They've recently launched&nbsp;<a href="https://www.apartments.com.au/new-townhouses/wm-residences-mordialloc-102-white-street-mordialloc-vic-3195">WM Residences</a>, just 13 townhouses which they have already started building.

Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be

"Mordialloc residents have had limited options to downsize within the suburb, often forcing them to look elsewhere despite long-standing ties to the area," Thompson says.

"With very little comparable new supply coming to market, projects like WM Residences are well placed, particularly as buyers look to capitalise on current conditions amid constrained supply."

[smartcode_project:default project_id=134646 project_image_fid=6109]

The development, designed by regarded architecture firm&nbsp;<a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a>,&nbsp;adopts a deliberately restrained architectural approach, focusing on simplicity, durability and liveability rather than overt design gestures.

The boutique scale is central to the offering. With only 13 three-bedroom residences, each home is configured to prioritise functional layouts and everyday use, supported by private terraces and secure two-car garages.

Ewert Leaf’s design response leans into a calm, neutral material palette. Interiors are defined by oak flooring, white walls and soft finishes, creating a consistent and understated backdrop. The approach avoids trend-driven detailing in favour of longevity, with an emphasis on natural light and spatial clarity.

[smartcode_project:default project_id=134646 project_image_fid=6110]

Beyond aesthetics, the homes are designed to meet contemporary performance expectations. Each residence targets a minimum 6-star energy rating, incorporating double glazing, comprehensive insulation and all-electric Bosch appliances.

The project’s location supports a walkable coastal lifestyle, sitting within close proximity to Mordialloc’s foreshore, Main Street retail strip and the train station. Local cafés and dining venues, including Suburbia Deli and Hendriks Café, are within a short walk, reinforcing the area’s established neighbourhood character.

[smartcode_project:default project_id=134646 project_image_fid=6116]

While <a href="https://www.apartments.com.au/developments/mordialloc-vic-3195">Mordialloc</a> is often defined by its beach and pier, the project taps into other areas of day to day living, offering easy access to local food, casual dining and transport, rather than positioning itself purely as a lifestyle retreat.

WM Residences reflects a continued trend across Melbourne’s coastal suburbs towards smaller-scale, design-led townhouse developments, particularly on infill sites where proximity to amenity is already established.

With construction commenced prior to its market entry, the project aligns with a growing preference among buyers for developments with visible progress and defined delivery timeframes.

[smartcode_project_cta:default project_id=134646]

WM Residences fills gap in Mordialloc townhouse market

&nbsp;

Developer GURNER™ Group has revealed $1.65 billion in residential sales nationally across the 12 months to December 2025, driven largely by the continued momentum of its Docklands wellness-focused precinct, Elysium Fields.

The sales result was generated across seven projects in Victoria and New South Wales, headlined by Elysium Fields, GURNER™’s $2.75 billion mixed-use precinct planned for Harbour Esplanade in Docklands.

The project has recorded more than $500 million in sales across the first three towers, equating to around 580 apartments sold.

The first tower, Helios, has now sold out of its 240 private residences, with GURNER™ preparing to release a premium penthouse collection comprising 15 three-bedroom penthouses in coming weeks.

[smartcode_project:default project_id=144441 project_image_fid=370975]

Elysium Fields is being developed on the long-held 20,000 sqm Docklands site at 208-226 Harbour Esplanade, which had remained undeveloped for more than two decades prior to GURNER™ taking over the project around four years ago.

Construction has now commenced across four towers ranging between 18 and 30 storeys, with Hamilton Marino and Maxcon appointed as builders.

Once complete, the precinct is expected to comprise around 1,100 residences, alongside retail, hospitality and public realm uses integrated throughout the site.

[smartcode_project:default project_id=144441 project_image_fid=370981]

Designed by Fraser &amp; Partners in collaboration with GURNER™ Design House, the project has been positioned around the developer’s broader focus on wellness-led residential living.

“We don’t sell apartments. We create a true luxury lifestyle that simply doesn’t exist elsewhere in the market today,” Founder and Executive Chairman Tim Gurner said.

“To deliver that requires an extraordinary level of detail, coordination and discipline across multiple verticals, from design and hospitality through to wellness and service.”

“We’ve always believed that living extends far beyond the physical residence. It’s about how you feel the moment you arrive, how you live day-to-day, and the ecosystem that supports that.” 
[smartcode_project:default project_id=144441 project_image_fid=370977]

The project’s design places a heavy focus on landscaping, wellness amenities and biophilic design principles.

Plans include around 3,700 sqm of landscaped gardens and open space throughout the precinct, alongside a retail and dining offering spanning approximately 5,000 sqm.

The broader public realm strategy centres around what GURNER™ describes as the “Path of Life”, an urban forest and landscaped pedestrian environment intended to connect the various buildings and wellness spaces across the precinct.

The apartments themselves will incorporate a range of wellness-focused inclusions, including purified air and water systems, circadian lighting, antimicrobial surfaces, and optional in-home wellness upgrades.

[smartcode_project:default project_id=144441 project_image_fid=370980]

Gurner said the company’s experience through its Saint Haven wellness clubs had directly informed the residential offering now being incorporated into Elysium Fields.

“We’re seeing a clear global shift toward longevity, performance and proactive health,” Gurner said.

“Our role is to deliver that in a way that feels seamless, highly private and beautifully resolved within the environments we create.”

A large component of the wellness offering is planned through the resident amenity and health facilities proposed within the precinct.

That includes plans for bathing and recovery facilities spread throughout the towers, incorporating mineral pools, saunas, steam rooms, flotation therapy, red light therapy and wellness lounges.

The developer is also seeking approvals for what it describes as a “reverse ageing medical clinic” within the precinct.

[smartcode_project:default project_id=144441 project_image_fid=370978]

According to project information released by the group, the proposed facility would include cryotherapy, IV infusion therapy, infrared and dry saunas, PEMF beds, MRIs, DEXA scans, brain scans and blood analysis services.

Within the first tower, Helios, residents will also have access to a dedicated amenity offering known as the Sky Private Club.

The upper 15 levels of the building will include private lounges, dining spaces, rooftop amenities and optional private wellness studios integrated within residences.

The Helios tower itself comprises 260 apartments ranging between 60 sqm and 300 sqm, including a collection of penthouses.

That includes a planned two-storey penthouse spanning around 600 sqm with uninterrupted bay views.

The Elysium Fields precinct is being delivered in partnership with Digital Harbour Holdings, a consortium that includes the Liberman family, which controls the development rights across the Docklands site.

[smartcode_project:default project_id=144441 project_image_fid=370979]

The sales result comes as GURNER™ continues expanding its national development pipeline beyond Victoria.

“We have a strong pipeline across Australia and are now focused on scaling into key markets including New South Wales and Queensland, while continuing to build on our Melbourne base,” Gurner said.

“We currently have more than $3 billion in the market, growing to over $5 billion by October, and expect to materially outperform last year in the 2026 calendar year.”

The result also reflects the continued strength of the upper-end apartment market in Melbourne, particularly for owner-occupier-focused product with large-scale amenity and lifestyle offerings.

[smartcode_project_cta:default project_id=144441]

Record result anchored by the Group’s “utopian” Elysium Fields precinct – defying market headwinds in Docklands.

Elysium Fields drive Gurner to $1.65 billion in apartment sales over 2025

National Australia Bank (NAB) will fund <a href="https://www.apartments.com.au/new-apartments/palmera-residences-gold-coast-18-garfield-terrace-surfers-paradise-qld-4217">Palmera</a>, a $1 billion, 52-level luxury residential tower being developed by Central Equity in one of the Gold Coast’s most tightly held coastal locations at Northcliffe.

The project, launched recently by <a href="https://www.apartments.com.au/developers/central-equity">Central Equity</a>, one of Victoria’s largest private residential developers, comes at a time when construction funding for large residential developments has become increasingly competitive as lenders tighten exposure to the sector.

Multiplex has been appointed the builder, and construction is now underway.

[smartcode_project:default project_id=108274 project_image_fid=365784]

Since its first project, Central Equity has delivered more than 85 residential developments with a combined end value exceeding $8 billion.

Palmera reflects Central Equity’s growing focus on the Gold Coast luxury apartment market and continues a relationship between Central Equity and NAB that dates back to the late 1980s, when the bank funded one of Melbourne’s earliest inner-city residential towers at a time when high-rise apartment living in the CBD was largely unproven.

“NAB’s funding of Central Equity’s $36 million CBD development in the late 1980’s to the financing of the billion-dollar tower today highlights the long-term relationship between the two organisations in delivering major residential projects” said Central Equity Founder and Chairman Eddie Kutner.

He said NAB’s early support was instrumental in helping establish the company’s development model.

“When we commenced our first residential tower in the late 1980s the concept of funding off-the-plan apartments was still largely untested in Australia,” Kutner said.

“NAB recognised the opportunity early and supported the project when others were uncertain. That relationship has now continued for more than 37 years across many developments.”

[smartcode_project:default project_id=108274 project_image_fid=365771]

Central Equity was established in 1987 when Melbourne’s CBD and Southbank precinct were still dominated by warehouses and commercial buildings. Fewer than 100 residents lived in Southbank at the time, and large-scale residential development in the inner city was not widely considered.

Recognising changing demographics and lifestyle preferences, the company began developing high-rise residential projects designed to bring permanent residents into the city centre.

Central Equity has provided accommodation for approximately 40,000 residents across Melbourne’s CBD and Southbank, while also incorporating supporting infrastructure including essential lifestyle facilities like retail spaces, childcare facilities and neighbourhood activity centres.

Central Equity has spent many years assembling the Palmera development site on the corner of Garfield Terrace and Frederick Street in Northcliffe, creating a supersite of around 3,300 sqm.

The developer said the Palmera apartment tower reflects its long-term view of the Gold Coast as a growing and increasingly diversified economy.

[smartcode_project:default project_id=108274 project_image_fid=365768]

Supported by infrastructure including the light rail network, major road upgrades expanded education, hospital and medical facilities and continued expansion at the Gold Coast Airport with more international and domestic flights.

Positioned in the tightly held Northcliffe precinct, the 52-level tower will deliver 347 apartments, targeting buyers seeking a high-end coastal lifestyle, from downsizers to interstate investors.

Designed by Marchese Partners with interiors by DBI, Palmera has been conceived as a next-generation residential offering, featuring a collection of oversized apartments, with premium three-bedroom residences offering sweeping northern views stretching from Surfers Paradise through to Burleigh Heads.

[smartcode_project_cta:default project_id=108274]

NAB funds $1 billion Surfers Paradise apartment development, Palmera

Two years after completing one of the newest developments in North Sydney, developer <a href="https://www.apartments.com.au/developers/aqualand-australia">Aqualand</a> is turning its attention to the rapidly evolving St Leonards apartment market.

The developer, which completed AURA by Aqualand on North Sydney's Walker Street, has lodged plans for a 5,918 sqm site at <a href="https://www.apartments.com.au/new-apartments/33-37-herbert-street-st-leonards-nsw-2065">33-37 Herbert Street, St Leonards,</a> seeking approval for a pair of residential towers rising above a shared podium opposite Royal North Shore Hospital.

The proposal forms part of the broader transformation underway across the St Leonards-Crows Nest precinct, where former industrial and commercial sites are increasingly being redeveloped into high-density mixed-use projects tied to major transport infrastructure.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="2cc428cf-fe70-4cac-9cd5-264ad53af62c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.56%E2%80%AFAM.png?VersionId=otKSnHtbjAvAddOnovyXQMgcAwE6DMe1" />

According to the planning documents, the site sits “within the St Leonards–Crows Nest Strategic Centre, identified by the NSW Government as a key area for accommodating future jobs and housing across Sydney.”

The proposal has been designed by fjcstudio, formerly FJMT Studio, and is being progressed through the State Significant Development pathway due to its scale and affordable housing provision.

The scheme would comprise 413 apartments, including 46 affordable housing units, alongside retail and commercial uses fronting Herbert Street. The project would also include communal open space, landscaping, a swimming pool, gymnasium, children’s play areas and podium-level resident amenities.

Planning documents show the development would consist of a part-13, part-39 storey tower form positioned above a four-storey podium.

“The development comprises a unified podium that activates the street interface, and two setback towers to accommodate new housing supply while maintaining an appropriate human scale at ground level,” fjcstudio noted in its Design Report.

The northern and southern towers have been shaped to respond to the surrounding skyline while also limiting overshadowing impacts to nearby public open space, particularly Talus Reserve.

The design report said the differing tower heights were intended to “contribute to a varied skyline while responding to the surrounding built form context and solar access considerations.”

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="36da62dc-ff9e-41f2-a7e3-7be38373751c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.45%E2%80%AFAM_0.png?VersionId=Mo6Rp2r.XRLTzIfg_PEEpw8NepDH8UBs" />

The site sits directly opposite Royal North Shore Hospital and within walking distance of both St Leonards Station and the new Crows Nest Metro station.

While the site itself sits just outside the formal Crows Nest Transport Oriented Development boundary, the planning documents repeatedly reference its alignment with the broader TOD objectives reshaping the Lower North Shore.

“The site is located adjacent to St Leonards Station and in close proximity to Crows Nest Metro which is within the Crows Nest Transit Orientated Development Accelerated Precinct which has been identified by the NSW Government to support housing delivery,” the Design Verification Statement noted.

According to fjcstudio, the project has been designed to respond to the broader transition occurring across St Leonards, where increasing residential density is being concentrated around transport infrastructure and employment hubs.

“The broader precinct is undergoing significant change, with a mix of existing mid-rise buildings and newer high-density developments,” the report stated.

“Recent and approved projects indicate a consistent shift toward taller built form, typically organised as tower-and-podium typologies with more active ground levels.”

The proposal includes close to 6,000 sqm of retail and commercial space across the ground floor and podium levels, designed to create a more activated street edge along Herbert Street.

Aqualand’s plans would also introduce a landscaped podium shared between the two towers, with communal open space in the form of a podium rooftop designed to support resident interaction and improve urban greening outcomes. The scheme would also introduce pocket parks at the northern and southern ends of the site, including a landscaped area at the corner of Herbert and Ella streets designed to improve pedestrian amenity and soften the streetscape.

&nbsp;

The proposal is being progressed through the NSW Government’s Housing Delivery Authority pathway, which was introduced to accelerate housing supply across the state. The application was declared State Significant Development in April 2025 following an expression of interest process.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="faf6d97d-2671-454f-b85a-fe1c6a7be608" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.49%E2%80%AFAM.png?VersionId=diVd28OBVr5.YV.7prrOz.uAanwwwm7a" />

St Leonards has been particularly active with new developments in recent weeks. Developer SP Setia’s <a href="https://www.apartments.com.au/news/nsw/first-look-sp-setia-targets-st-leonards-skyline-with-40-storey-tod-tower">plans for a new 42-storey tower</a> recently went on exhibition through the same pathway, while <a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">Stockland’s 52-storey tower proposal</a> was also recently unveiled.

Aside from the St Leonards project, which is expected to take around nine months to move through the approvals process ahead of a potential 2027 launch, Aqualand is also preparing to launch Boronia, a new apartment project in Roseville comprising around 111 apartments on Larkin Street.

The developer also has approvals in place for the next stage of the Barangaroo precinct, which will feature new residential, retail, hospitality and community uses, alongside a new metro entry across the five-hectare site.

More than 50 new retail destinations are planned for Central Barangaroo, alongside a 270-metre-long boulevard connecting Hickson Park to Nawi Cove. Together with Harbour Park, more than 50 per cent of the precinct will comprise public open space and parkland.

First look: Aqualand joins St Leonards apartment party

Finance

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The Australian Bureau of Statistics (ABS) released housing finance data for January 2015 this week. 
This data represents the first full month of lending-based results after APRA’s recommendation to Australian Authorised Deposit-taking Institutes (ADI’s) reinforcing sound residential mortgage lending benchmarks. <img class="aligncenter size-full wp-image-4377" src="https://blog.corelogic.com.au/wp-content/uploads/2015/03/Chart-11.jpg" alt="Chart 1" width="500" height="186"> Over the month the total value of housing finance commitments fell by -0.6% across both the owner occupier and investor segments of the market. The value of housing finance commitments has increased by 12.8% year on year. 
Taking a look at the breakdown between the owner occupier and investor segment of the market, it is clear that most of the strength is coming from investors. The value of owner occupier housing finance commitments fell by -1.0% over the month and investor lending recorded a fall of -0.1%. 
Despite the monthly fall in lending, the value of housing finance commitments was 7.1% higher year on year to owner occupiers and 22.1% higher to investors. <img class="aligncenter size-full wp-image-4378" src="https://blog.corelogic.com.au/wp-content/uploads/2015/03/Chart-21.jpg" alt="Chart 2" width="500" height="182"> The proportion of total lending to investors reached an all-time high in January 2015. Over the month, 41.4% of the value of all housing finance commitments was to investors. 
In comparison, a record low 39.1% of the value of housing lending was to owner occupiers for new loan purposes and 19.5% was to owner occupiers for refinances. If we look solely at the value of new lending (excluding refinances) investor lending hit a record high 51.4% of all new lending in January 2015. <img class="aligncenter size-full wp-image-4379" src="https://blog.corelogic.com.au/wp-content/uploads/2015/03/Chart-31.jpg" alt="Chart 3" width="500" height="180"> Focussing on the owner occupier segment of lending, $17.7 billion was lent in January down from $17.9 billion in December. Across the segment: $1.8 billion was lent for construction of new homes, $0.9 billion for the purchase of new homes, a record high $5.9 billion for refinances and $9.1 billion for purchase of established homes.
 Month on month, housing finance commitments for owner occupiers fell by -2.6% for construction of new homes, -5.4% for the purchase of new homes, +1.8% for refinances and -2.0% for purchases of established dwellings. year on year, the strength in the owner occupier segment has largely been from refinances which have increased by 28.5%. Across the other segments, construction of new homes were up +1.5%, purchase of new homes are -7.2% and purchase of established homes are -0.9%.
The data indicates that much of the activity across the owner occupier segment of the market is coming from refinances as home owners shop around for a better deal or prepare to withdraw some of their equity which would feed into the strength of the investment segment. <img class="aligncenter size-full wp-image-4380" src="https://blog.corelogic.com.au/wp-content/uploads/2015/03/Chart-41.jpg" alt="Chart 4" width="500" height="183"> Turning to the investment lending segment, $12.5 billion was lent in January which was slightly lower than investment lending in December. Over the month there was $0.8 billion in commitments for construction of new dwelling and $11.7 billion for commitments to existing homes showing that investor lending is largely going to existing homes with lending to that segment almost 14 times greater than lending for new construction. Over the month, investor commitments for new construction fell -18.8% compared to a 1.6% increase in lending for purchases of existing homes.
year on year, the value of commitments for construction of new dwellings is 85.1% higher while investor lending for established homes has increased by 19.1%. The data shows that despite lending to investors is surging, a relatively small amount of this lending is contributing to new housing stock being constructed. <img class="aligncenter size-full wp-image-4381" src="https://blog.corelogic.com.au/wp-content/uploads/2015/03/Chart-51.jpg" alt="Chart 5" width="500" height="181"> Turning to the first home buyer segment of the market, the number of owner occupier first home buyer commitments fell sharply in January. It should be noted that this data series is not seasonally adjusted. Over the month there were 5,961 commitments which was -26.4% lower over the month and -14.4% lower year on year. As a proportion of all owner occupier housing finance commitments, investors accounted for 14.2% of commitments in January. 
Based on this data, the level of first home buyer participation in the market remains extremely low, however a weakness of the ABS data set is that it doesn’t identify first home buyers that are purchasing as investors. Anecdotally, it appears that many first time buyers are choosing to purchase an investment property rather than a principal place of residence. <img class="aligncenter size-full wp-image-4382" src="https://blog.corelogic.com.au/wp-content/uploads/2015/03/Mortgage-Index.jpg" alt="Mortgage Index" width="500" height="181"> The CoreLogic RP Data Mortgage Index measures activity across CoreLogic RP Data’s mortgage platforms each week. The activity is highly correlated with housing finance data and as the above chart shows, activity has surged over recent weeks. Based on this data, it suggests that despite the Christmas / New Year slowdown there has been no sustained slowdown in mortgage demand. Given this we would expect a rebound in housing finance commitment over the coming months.
Following the letter from APRA to Australian ADI’s in December we have seen a slight easing in housing finance commitments however, it is too early to suggest the two are related. Investor activity remains very strong and for the first time on record we have seen six consecutive months in which lending to investors is greater than lending to owner occupiers for new loans. Investors are largely purchasing existing homes which does little to contribute to new housing, although the value of commitments to investors for new construction has risen sharply over the past year. The owner occupier segment is largely being driven by refinance activity as borrowers shop around for better deals on their mortgage and prepare to re-invest some of their equity.
Over the coming months it will be important to monitor if the new guidelines from APRA and the ramping up of their surveillance of mortgage lending has much of an effect on demand. We would suspect that the high level of competition in the mortgage market is likely to result in minimal change across the board. While some individual lenders may have to tinker with their lending policies, borrowers have many other banks to choose from if one borrower cannot provide the type of product they are looking for.
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ckusher-ujnxiKuFQs

Housing finance eases but lending to investors soars to an all-time high: Cameron Kusher

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Hi Margaret,
I’m looking to buy my first investment property. I already have my own home which we have a fair bit of equity in. We will use that equity to finance the next deposit. 
Do we have to have access to that equity to put down as a deposit at contract signing? Or can we sign a contract with 100% of the purchase value subject to finance?
Regards,
Samuel
Hi Samuel,
First of all, congratulations on being ready to take this first step!  As it is likely you may be looking for an investment property anywhere in Australia, its important that you understand the differences which exist in every state in terms of how a property is transacted and the procedure for deposits.
First of all, the deposit required in every state, and when it is paid, is different. For example, in NSW, the deposit is either made in the form of a non-refundable 0.25% of the purchase price upon acceptance of the offer (to secure it and protect you from being gazumped), with the balance of 10% of the purchase price being required five days later (at which time the contract becomes unconditional), or as a straight 10% when you are ready make your contract unconditional (but in the meantime someone else can buy it).
In complete contrast, a QLD purchase attracts an initial deposit of whatever you can negotiate (I always suggest $1,000 and this is refundable)  with a ‘balance deposit’ (again I suggest a further $9,000) to be paid upon the contract becoming unconditional.  In between those two extremes falls the other states, and you must become familiar with each state’s individual process before you even begin to find your investment.
In any event, a deposit of some type is usually paid, and in your case, the entire amount of your deposit is tied up as equity in other property.  While you can use your own cash to make a deposit, this is not advised.  This is because if you use your own cash, you cannot subsequently ‘repay’ yourself from the loan you get to buy the property, as this payment to you is considered by the tax office to be a personal payment.  It then loses the ability for the interest incurred on this amount to be claimed as a deduction.  It’s important to preserve the nexus between a payment and the property, and the only way to do that is to ensure loan funds are spent directly on the property or its expenses.
You have two ways that you can get to this deposit and still maintain full deductibility without using your own cash:
<img src="/images/2014/07/04/yellow-one.jpg" alt="">You can approach the lender even before you find a property and set up a ‘line of credit’ loan using your current property equity.  This line of credit loan then sits undrawn, and the moment you find a property it is available for you to draw from to make the deposit.  As long as the funds from this debt are only ever used for, and connected to, an investment property, they are fully deductible.  There is a multitude of ways you can do this:
<ul>
<li>you can make it as large as your equity allows, use it for deposits every time you buy a new property, obtaining an 80% loan against any new property when you settle it (and so your 20% and costs comes from the line of credit to add to this 80% loan), 
</li>
<li>you can apply for only enough for the deposit, and then apply for a loan increase to be effected when the property settles and can be taken as security, or, 
</li>
<li>if you have enough equity in your own home, you can just put in place a loan big enough to buy the whole property – drawing the funds up as needed to pay deposits, costs and the final payment.</li>
</ul>
<img src="/images/2014/07/04/yellow-two.jpg" alt="">You can instead get a deposit bond.  This is an insurance policy of sorts, which guarantees to the vendor that, if you renege and do not proceed with the purchase, your forfeited deposit will be paid by them.  A deposit bond has a fee which is often less than the interest on the deposit would be if you were to use loan funds, but be warned – while the insurance company pays the forfeited deposit they still chase you to get it back!  This is only of concern if you withdraw from the purchase after your contract has become unconditional.
Whatever you decide, it’s important to get guidance from a qualified person who can be sure you structure this correctly, as getting it wrong can be a tax nightmare.  It’s also important that, before you even get started, you become educated – do a lot of reading and find a great property investment course to do first!
Have a property question?   <a href="mailto:askmargaret@propertyobserver.com.au" target="_blank">Ask Margaret!</a>
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mlomas-KC9MUPZ6Ca

Ask Margaret: How can I use my house's equity to finance my first investment?

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The Australian Bureau of Statistics (ABS) recently released housing finance data for December 2014.  
The data showed an end of year surge both in the value and the number of loans.  The surge coincided with the Australian Prudential Regulation Authority (APRA) warning Australian Authorised Deposit-taking Institutions (ADIs) about risky mortgage lending practices during the month.
<a href="https://blog.corelogic.com.au/wp-content/uploads/2015/02/Chart-1.jpg"><img class="aligncenter size-full wp-image-4253" src="https://blog.corelogic.com.au/wp-content/uploads/2015/02/Chart-1.jpg" alt="Chart 1" width="500" height="182"></a>
Over the month, the value of housing finance commitments increased by a total of 4.7%, the largest monthly increase since September 2013.  
The large increase was comprised of a 4.1% increase in owner occupier refinanced loans, a 3.6% increase in owner occupier new loans and a 6.0% increase in investor loans.  
The surge in investor loans is noteworthy, but so too is the jump in owner occupier new loans which had been flat for the past 12 months.  
Year on year, owner occupier refinances have increased by 27.0%, owner occupier new loans have increased by 4.9% and investor loans have climbed 18.8% higher.
<a href="https://blog.corelogic.com.au/wp-content/uploads/2015/02/Chart-2.jpg"><img class="aligncenter size-full wp-image-4254" src="https://blog.corelogic.com.au/wp-content/uploads/2015/02/Chart-2.jpg" alt="Chart 2" width="500" height="180"></a>
In December 2014, there were $5.8 billion in housing finance commitments for owner occupier refinances, $12.3 billion for owner occupier new loans and $12.6 billion for investor loans.  Both refinances and investor loan commitments were at a record high.  
Based on this data, the proportion of owner occupier new loans accounted for an all-time low 40.1% of housing finance commitments compared to 18.9% of all commitments for owner occupier refinances and a near record high 41.0% of commitments to investors.  
If we strip out refinances, investors accounted for a record high 50.6% of new housing finance commitments in December 2014.
<a href="https://blog.corelogic.com.au/wp-content/uploads/2015/02/Chart-3.jpg"><img class="aligncenter size-full wp-image-4255" src="https://blog.corelogic.com.au/wp-content/uploads/2015/02/Chart-3.jpg" alt="Chart 3" width="500" height="182"></a>
Looking specifically at the owner occupier segment of the market, there was $1.9 billion in commitments for construction of dwellings, $1.0 billion in commitments for the purchase of new dwellings, $5.8 billion in refinancing of established dwellings and $9.4 billion in commitments for established dwellings. 
 There has been a surge in finance demand over the year, particularly for newly constructed dwellings and refinances.  
Year on year, the change in owner occupier housing finance commitments has been recorded at: 14.6% for the construction of new dwellings, 1.8% for the purchase of new dwellings, 27.0% for refinances and an increase of 3.5% for purchase of established homes.
<a href="https://blog.corelogic.com.au/wp-content/uploads/2015/02/Chart-4.jpg"><img class="aligncenter size-full wp-image-4256" src="https://blog.corelogic.com.au/wp-content/uploads/2015/02/Chart-4.jpg" alt="Chart 4" width="500" height="184"></a>
Focusing on the investment segment, in December 2014 there was $1.0 billion lent for the purposes of both construction of new and $11.5 billion borrowed for investment in established homes.  The year on year changes have been recorded at 59.8% for new construction and 16.1% for established homes.
<a href="https://blog.corelogic.com.au/wp-content/uploads/2015/02/Chart-5.jpg"><img class="aligncenter size-full wp-image-4257" src="https://blog.corelogic.com.au/wp-content/uploads/2015/02/Chart-5.jpg" alt="Chart 5" width="500" height="179"></a>
The other important figure released by the ABS is the owner occupier first home buyer commitments. The ABS has recognized that these figures have been under-reported and have revised these figures this month.  Note that these figures still only include first home buyers that are purchasing homes for owner occupation. 
In December 2014, there were 8,213 owner occupier housing finance commitments to first home buyers, representing 14.5% of all owner occupier commitments.  Despite the revisions, the number of commitments is -1.3% lower over the year.  Furthermore, the 14.5% represents the lowest proportion of commitments to first home buyers since June 2004.
The data indicates first home buyers continue to languish whilst those that already own homes and are upgrading, refinancing or purchasing an investment property continue to dominate the market.  What is less clear is how many first time buyers are doing so for investment purposes (the ABS doesn’t provide a further breakdown of investment loans by buyer type as they do for owner occupiers).
As noted earlier, APRA wrote to Australian ADIs in December reiterating what they determine are prudent measures for lending and potential repercussions for those that don’t follow these guidelines. 
Given the results you would have to say it had little effect on borrowers or lenders in December.  It’s also worth noting that along with an 18.8% year on year increase in the value of investor commitments over 2014, the RBA’s housing credit data showed that total investor credit expanded by 10.1% in 2014. 
APRA noted concerns with lenders growing the investment segment of their loan book above 10% annually.  Based on these results you would have to say there remain some concerns for the regulator and it will be interesting to see if or what their next move is. 
What’s not in doubt is that the ball is now firmly in APRA’s court and we are closely watching what happens next.
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Investors surge after APRA warns about investor housing lending in December 2014

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Last week’s cut to the cash rate will start many borrowers thinking about refinancing their home loan. But like any financial decision, switching mortgages should not be taken lightly.
Here are several traps to avoid:
<ol>
<li>
Failing to consider your own circumstances – if your situation has changed since you first took out your mortgage, it’s wise to reassess whether you’ve got the right product. However, some changes of circumstances may mean that the loan you’re in will be the best deal you can get. If you have become self-employed since first taking out your mortgage, for example, you may be required to take out a low-doc loan if you refinance. These tend to charge higher interest rates than standard discounted home loans, so it’s likely you’d have to pay more. Similarly, if you or your partner has retired or stopped working for some other reason, your ability to repay a loan may be assessed differently by a new lender than under your existing mortgage contract. 
</li>
<li>
Ignoring switching costs – Fixed rate mortgages charge break fees for exiting early. These may make it prohibitively expensive to switch. Exit fees for variable rate mortgages were banned in 2011 and those on most on older mortgages would have expired by now but there are still costs associated with taking out a new mortgage that should be balanced against any savings you’ll receive by getting a lower rate. Fees to watch for include discharge fees paid to your current lender for preparing documents to finalise and pay out the existing loan; application fees to the new lender; valuation fees charged by the new institution for obtaining an up-to-date valuation on the property; and land registration fees for replacing the mortgage with the existing lender with one from the new institution. Canstar estimates these refinancing fees can add up to around $1,000. Consider whether that cost outweighs the benefits of a lower interest rate over a reasonable pay-back period. 
</li>
<li>
Comparing apples with oranges – if you have a fully featured mortgage, make sure you’re comparing the cost of a similar loan. Basic mortgages typically cost less than fully featured options, but a loan with more features may save you money in the long run if you take advantage of it. Holding $10,000 in an offset account could save $250 a year on a $250,000 loan that charges 5% interest. That may not sound like much, but that’s the equivalent of 0.2% lower annual interest rate. On the other hand, if you’ve never used the features such as offset accounts, discounted credit cards or home insurance policies that come with some loans, this might be a good time to dispense with the extras. 
</li>
<li>
Going for a fixed rate – rates are at historic lows. Fixed rate mortgages are available at 4.35%, fixed for two years on a 30 years mortgage (from Loans.com.au), according to Finder.com.au. Variable rate loans are offering 4.25% (also from Loans.com.au).   If you want to be sure of what your repayments will be, consider a fixed rate loan but remember you will be trading off flexibility. Most fixed rate loans prevent you from making extra repayments or repaying in full before the end of the term. Should you circumstances change, you may be hit with break fees if you choose to lock in the interest rate. 
</li>
<li>
Failing to approach your existing lender – rather than rushing out and swapping lender, have you approached your existing lender to see if they can give you a better deal? If there are lower rates in the market and you’re a good customer, they may go out of their way to keep you. It can be more efficient and less costly to get a better deal where you are rather than moving externally, especially if you hold other financial products – bank accounts and credit cards for instance – with the same institution. 
</li>
<li>
Ignoring some of the options – whether you’re using a mortgage broker to help you refinance, referring to a comparator website or succumbing to advertisements, remember that there are other options out there. Brokers include only a sub-set of available lenders on their panel of suggestions. You may get a good deal, but is it the best in the market? The only way to find out is to research more widely. Again, there’s an element of trade-off here. You might find that near enough is preferable to spending hours of investigation to get the best of the best. 
</li>
<li>
Failing to consider the lender’s history – if you’re switching to a variable rate, remember these can change at any time. Some lenders offer attractive promotional rates to lure borrowers in but fail to pass on subsequent interest rate cuts in a timely manner. Many lenders have quickly followed the Reserve Bank of Australia at this rate cut but that’s not what happens every time. A month-long delay in passing through a 0.25% interest rate cut would cost $83 in interest repayments on a $400,000 mortgage. Lenders may even lift rates out of cycle with the RBA if they decide that’s right for their business. It’s very difficult to tell which lenders will be the ones to do these things but investigating their behaviour when interest rates changed in the past may sound some warning bells. </li>
</ol>
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zfielding-GvX3Uq9KTa

Seven traps to avoid when refinancing

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GUEST OBSERVATION
Heading into 2015, I think we can expect to see a steady increase in the level of refinancing.
The Reserve Bank’s decision to cut the cash rate in February will no doubt encourage more home owners to review their current mortgage, which may prompt them to take the plunge and refinance into a more competitively priced home loan.
But while an increasing number of home owners could potentially be inspired to refinance their mortgage as a result of the rate cut, I do not expect to see a dramatic increase in the number of new home buyers entering the market.
Given how low interest rates already are, the February rate cut is unlikely to persuade potential home buyers to bring their property purchase plans forward. Instead, potential buyers will continue to take their time and enter the market at a point that is convenient for them.
That said, the Reserve Bank of Australia together with other industry regulators, including the Australian Prudential Regulation Authority (APRA), will still keep a close eye on what is happening in the property market as they will want to make sure the rate cut doesn’t artificially inflate the property market – especially in Sydney.
As part of the Reserve Bank’s February cash rate decision, governor Glenn Stevens said the Bank would work closely with “other regulators to assess and contain economic risks that may arise from the housing market”. 
This statement strongly suggests industry regulators won’t hesitate to implement certain lending restrictions if the latest rate cut results in a sudden and dramatic increase in demand for property.
Jessica Darnbrough is head of corporate affairs with <a href="https://www.mortgagechoice.com.au/" target="_blank">Mortgage Choice</a>.
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JessicaDarnbrough-syp4rPD4iy

RBA's rate cut will trigger rise in refinancing: Jessica Darnbrough

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Australians with multiple superannuation accounts could be paying thousands in unnecessary fees every year.
<a href="/news">According to new figures released today </a>by the Australian Taxation Office (ATO), 45% of working Australians have more than one super account.
The ATO is encouraging those with multiple accounts to consider consolidating their super into one preferred account. Australian Prudential and Regulation Authority (APRA) figures show the median figure for fees and charges paid by Australians for a low cost superannuation account is $532 per year.
“Consolidating your super into one preferred account is easier than ever and the New Year is the perfect opportunity to make a fresh start with your finances.” says ATO Assistant Commissioner of Superannuation, John Shepherd.
“It is not uncommon for people to open a new super account when they start a new job instead of taking their super fund with them when they change jobs.
“People might also have super accounts which they have lost track of, for example, they may not have updated their contact details with their funds when they moved house — there are still $5.8 billion worth of accounts in this category.”
Australians are encouraged to use the improved myGov online portal to check their super accounts and consolidate multiple accounts.
“myGov has made it much easier for people to combine their super accounts in one place,” Shepherd said.
“Users can see all their accounts and consolidate them with a few clicks and having one account minimises fees and can help maximise retirement savings.
“We’ve recently seen a significant increase in Australians merging their super into one preferred account with more than 265,000 accounts with balances totalling $1.13 billion consolidated in the six months to December 2014. In one case, 17 accounts were consolidated.
“This is a rise of 400% from the six months to December 2013 when 52,000 accounts worth more than $270 million were consolidated.
“If you’ve tried to combine your accounts before and found it difficult to do, give it another go. We have simplified the process since our online services were first launched and it’s now easier than ever to consolidate your super.”
Shepherd said that before people consolidate, they should look at any insurance cover with each fund, as it will be cancelled once they close their account.
“People should also make sure their super fund has their tax file number. They'll pay less tax on their super and it will help us to make sure all their super accounts are displayed online,” he said.
The following data provides a breakdown of the lost super by postcode as at 31 December 2014:
<table style="width: 460px;"><tbody>
<tr>
<th>
State
</th>
<th>
Total no. of accounts
</th>
<th>
Value of accounts
</th>
</tr>
<tr>
<td>
ACT
</td>
<td>
22,270
</td>
<td>
$248,435,330.45
</td>
</tr>
<tr>
<td>
NSW
</td>
<td>
405,079
</td>
<td>
$4,212,608,046.21
</td>
</tr>
<tr>
<td>
NT
</td>
<td>
23,819
</td>
<td>
$208,096,039.80
</td>
</tr>
<tr>
<td>
QLD
</td>
<td>
274,790
</td>
<td>
$2,722,734,421.04
</td>
</tr>
<tr>
<td>
SA
</td>
<td>
72,238
</td>
<td>
$680,425,943.04
</td>
</tr>
<tr>
<td>
TAS
</td>
<td>
22,160
</td>
<td>
$198,112,427.52
</td>
</tr>
<tr>
<td>
VIC
</td>
<td>
264,330
</td>
<td>
$2,736,093,306.68
</td>
</tr>
<tr>
<td>
WA
</td>
<td>
207,075
</td>
<td>
$1,518,250,373.92
</td>
</tr>
<tr>
<td>
Total
</td>
<td>
1,291,761
</td>
<td>
$12,524,755,888.66*
</td>
</tr>
</tbody></table>
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jchancellor-FAypfDUnLy

Australians losing thousands with multiple super accounts

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It seems that one of the big issues for Australian households trying to achieve their financial goals is, simply, a lack of discipline with their money, according to a new survey.
ME Bank’s Savings Intentions and Behaviours Survey, which queried 1,500 adults across the country in December 2014, found that 59% of Australian households do not consistently set a budget.
A further 41% set a budget but do not stick to it, while only 38% of households keep written or electronic records of their monthly expenses over the past six months.
ME Bank head of deposits and transactional banking, Nicolas Emery, said that commitment to detail and discipline are necessary for good savings habits.
“But it’s easy to resolve: you just need to track the real costs of your household expenses, set a realistic budget and commit to every single detail, consistently,” he said.
However, this wasn’t the only alarming statistic they found.
Around 46% of Australian households reported they were ‘credit card revolvers’, where they rarely or never paid their debt off completely. A further 20% failed to pay household bills on time.
“Real problems start to occur when you get stuck in a roundabout of not paying your credit card or bills on time,” said Emery.
“We strongly advise anyone struggling with credit card debt after Christmas, or anytime of the year to address the issue as soon as possible.”
He suggested that consolidating debts through a personal loan can remove you from the “interest payment roundabout”.
Interestingly, it was Gen X and Gen Y that came out the worst, with 72% of Gen Y not keeping a record of monthly expenses and 67% not setting a weekly or monthly budget.
Across the age groups, it seems that most are cautionary or conservative with financial goals. The majority of the top goals related to paying off debt, with the top being paying off mortgage and/or debt or small savings goals. This included saving for a rainy day, saving for a holiday, car or other non-home related expense.
{mijopolls 73}
 
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jduke-EHk3XBmHkn

Poll: Are you disciplined with money?

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Guest observation
Working with the banks on a daily basis, its easy to understand why tech savvy entrepreneurs are competing for their market share.
Innovation, like <a href="https://http//www.afr.com/p/business/companies/paypal_targets_aussie_business_loans_RrvZdKX866PcZidAXElHcJ">PayPal's </a>venture into the small business loans sector, will force our banks to become more competitive and accommodating when dealing with small to medium enterprises (SMEs) who continue to be forced to meet ridiculous hurdles when trying to access capital.
Although our banks would argue otherwise, in my opinion, other than continuing to channel huge amounts of dollars into property, our banks have played a very small role in helping SME’s grow during the post GFC years and the economic recovery in general.
If you were to look deeper into lending in Australia, you will see that most of the lending that does occur to businesses is supported by the security of Real Property.
Banks have effectively homogenised lending to the lowest common denominator, with very little room for negotiation when it comes to products, pricing or terms. They also almost always rely on Real Property Security as a substitute to critical credit analysis, where a lender would set pricing according to risk.
This standardised form of lending has ensured that the banks can continue to operate with the lowest cost base generating the highest returns.
Of course, this has been great windfall for shareholders, but at what cost to the real economy? 
<a href="https://http//www.afr.com/f/free/blogs/christopher_joye/houses_overvalued_official_up_to_OaTjLJaWNe179RZAhcUzJI">Our property market is one of the most expensive in the world</a>, <a href="https://http//www.smh.com.au/business/the-economy/australians-living-the-high-cost-life-20140430-37h4b">we have one of the highest costs of living </a>and yet our economy lacks efficiency and <a href="https://http//theconversation.com/australias-productivity-problem-why-it-matters-8584">productivity has deteriorated dramatically during the past decade</a>.
These imbalances are very obvious and have all been compounded by the fact that capital in Australia is not channeled into the most productive areas where it will achieve the maximum return.
Banks play a critical role in our economy. We need them to be profitable and well capitalised, but while they continue to remain protected from competition, remain “<a href="https://http//www.afr.com/p/business/financial_services/major_banks_pay_the_price_for_being_fSEQAeD1pHK9L8Qm6hJFkP">to big to fail</a>” and continue to rely on government guarantees underwritten by our tax dollars, they should be forced to make a greater contribution to the growth and success of our economy.
Or, to put it another way, they should not be allowed to conduct their business in a way the that kills productivity and put into jeopardy the hopes and dreams of future generations.
Con Katsiouras is the Director of Folio Finance.
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po-LsXgBTHBmX

Lending to housing is a productivity killer

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The new Mortgage Choice Happy As Index has found that 49.4% of Victorians are comfortable with their finances, with 28.6% noting they are uncomfortable.
Just over 20% considered themselves “neutral” with their finances.
Mortgage Choice spokesperson Jessica Darnbrough said that it was a pleasing result, pointing to the number of those committed to saving their money.
“When Victorians were asked how much of their after tax income they had managed to save this year, more than 40% said they had saved more than 16% of their after tax income,” said Darnbrough.
A further 10.8% said that they saved 21% to 25% of their income.
Less than 25% noted that they hadn’t saved at all.
“The index found that almost 40% of Victorians only worry about their finances when they have a ‘big financial commitment’,” she said. A total of 20% said that they think about finances on a ‘daily basis’.
The majority, at 59.8%, said that they were happy or extremely happy with their current lifestyle. This was a result only beaten by Queenslanders, with 63% citing themselves as happy or very happy with their current lifestyle.
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Almost half of Victorians “financially comfortable”: Mortgage Choice Happy As Index

<html><body>
GUEST OBSERVATION
Banks borrow short and lend long. So if all of a bank’s depositors suddenly want their money, the bank would be unable to pay them. A bank may have made great loans but it can only unwind these loans slowly over time.
In most situations this doesn’t matter. Banks know their cash flows and play the probabilities, making sure they have a buffer of liquid assets to meet normal withdrawals.
However, a crisis can trigger a run on banks. Every depositor wants to get his or her money out of the bank before everyone else. The bank runs out of cash and closes its doors. It fails.
Bank regulation is at the heart of the current <a href="https://fsi.gov.au" target="_blank">Financial System Inquiry</a> chaired by David Murray. It will consider which regulations are important, which need to be strengthened and how <a href="https://www.bis.org/bcbs/index.htm" target="_blank">international banking rules</a> should apply in Australia.
Our recent <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2478496" target="_blank">research</a> compares some of the different rules that may be used to limit bank risk. We find that increased bank capital requirements are the most effective policy but must be applied across all institutions to stabilise the banking system.
The global financial crisis
The 2008 crisis resulted in plenty of traditional bank runs. In the United Kingdom, retail depositors lined the streets to take their money out of the failing Northern Rock.
We also saw a different type of bank run during this period. For example, a bank run led to the collapse of Lehman Brothers. Yet this didn’t involve retail depositors. It was institutions that stopped lending to Lehman Brothers on the wholesale market.
Australia’s banking system in 2008 was fundamentally sound. Our banks didn’t have abnormal levels of bad loans. Legal differences meant the default issues plaguing bank mortgages in California, Florida and elsewhere in the United States couldn’t occur in Australia.
Yet our banks were still exposed to the crisis through their reliance on imported wholesale funds. The Australian government responded to this risk of an “imported crisis”. In October 2008, it introduced explicit deposit insurance and guaranteed bank wholesale borrowing.
But why did Australia’s sound banking system come under pressure in 2008? Is there potential for Australia to import a banking crisis in the future? And what sort of banking regulations do we need to deal with this possibility?
Importing a banking crisis
Wholesale funds now provide a large part of the total funds available to banks in many countries. This has changed the nature of the risks they face.
<img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/63663/width668/sd32vc8q-1415143968.png" alt="">
 <a class="source" href="https://www.rba.gov.au/publications/rdp/2013/pdf/rdp2013-15.pdf" target="_blank" rel="nofollow">RBA Discussion Paper 2013-15 “Trends in the Funding and Lending Behaviour of Australian Banks“ Chris Stewart, Benn Robertson and Alexandra Heath</a>
Australian banks source much of their wholesale funding offshore. This inflow of capital allows Australia to undertake more investment, generating higher levels of growth and enhanced well-being.
Before the crisis, Australian banks were borrowing internationally an amount equal to 5% of our gross domestic product each year. In 2008, international funds flowing though the banks funded about one-fifth of Australia’s total investment.
The flow of international funds did not stop during the crisis. However, they became more expensive, transmitting the pain felt by European and US institutions to Australia.
Banks were not the only institutions affected by the sudden rise in the cost of foreign funds. Foreign direct investment, foreign portfolio investment, offshore capital raisings by Australian companies, and government borrowings were also impacted.
However, the impact on banks was more significant. Unlike other institutions, banks borrow money for relatively short periods but use the money to lend to companies and individuals for the long term. When they depend on short-term international funds, a sudden rise in the price of those funds exposes banks to higher costs and potential failure. Any failure can also have significant economic and political implications. The failure of one bank can lead to a run and the failure of other banks.
This means governments tend to intervene if bank failure is imminent. For example, Bankwest in 2008 was owned by flailing UK bank HBOS. It was facing failure and, following government intervention, was bought by the Commonwealth Bank.
The government’s move to insure bank deposits and wholesale funding stabilised the banking system during the crisis. Yet these were ad hoc policy responses. Australia still needs to develop long-term policies to deal with the next financial crisis.
Article continues on the next page. Please click below.
<hr class="system-pagebreak">
Developing the right regulation
Our recent research compares some of the different rules that are used, or might be used, to try to limit bank risk from offshore funding. This research is unique as we consider the consequences of specific policies at times of crisis and also during usual operations.
A policy may be effective at preventing a crisis but if it means that borrowers pay more and depositors receive less most of the time, then the protection provided by the policy may be overwhelmed by the day-to-day cost to the Australian public.
We take it as given that ordinary retail depositors will have some form of implicit or explicit government protection, so our focus is on the risk of bank default on bondholders. A bank fails if an increase in the cost of wholesale funds cuts its cash flows so that it cannot meet its debt obligations.
Regulators can do many things to limit banks’ exposure to imported wholesale funds and maybe make them less exposed to importing a banking crisis.
Regulations may require that banks use limited or no imported wholesale funds at all. Banks would have to be fully funded by domestic savings. Some countries like China have policies like this.
This policy is unlikely to work in Australia because it would significantly limit investment during normal operations. There would be no risk of importing a crisis but there would also be less domestic investment as borrowers would face higher interest rates. India has adopted this type of policy for many years and it has adversely impacted growth.
Depositors may gain from being a source of scarce investment funds but there would also be other costs. The banking sector would contract due to the restriction on fund access resulting in less competition.
Another policy that would reduce the likelihood of importing a financial crisis is for the government to have an explicit or implicit policy of bailing out bondholders. This occurred in the UK and US during 2008.
This policy has undesirable implications. If banks know that taxpayers effectively insure their bondholders, they will reduce the amount of equity issued and increase their amount of bonds. This would result in an increase in new entrants to the market based on excessively risky funding models.
Having a larger number of banks adopting a fragile funding model increases the likelihood of bank failures. If banks know they will be bailed out if they fail, then banks are more likely to fail. A bail-out policy actually increases the likelihood of future crises.
The most effective policy for dealing with wholesale funding risk is to increase the amount of capital banks are required to hold. While regulators have asked banks to hold more equity capital as insurance against lending risks, this policy can also reduce funding risks.
If a wholesale funding squeeze means that a bank cannot pay its bondholders, then the bank fails. If the squeeze simply reduces the dividend to shareholders, then the bank continues to operate. So requiring banks to hold more capital and less debt directly reduces the risk of failure.
While our research suggests that uniform minimum capital requirements can stabilise our banking system, it has been suggested these requirements only apply to “big” banks. Such an asymmetric policy would be undesirable. If there are weak funding restrictions on small banks, this will encourage the entry of a greater number of smaller and potentially more fragile banks. The result is an increased risk of future crises.
An asymmetric policy of increasing the capital requirements on large banks but not on small banks could have a stabilising effect if the government resolved never to bail out the small banks. Small banks could enter and leave the industry as funding conditions allowed and act as a shock-absorber to the system.
Politically, however, this is unlikely to work. Bankwest was not allowed to fail but was folded into the Commonwealth Bank. Even a small credit union like the Fitzroy and Carlton Community Credit Co-operative was <a href="https://www.bankmecu.com.au/why-bank-with-us/news-media/media/bankmecu-and-fitzroy-carlton-community-credit-co-operative" target="_blank">folded into a larger bank</a> last year rather than being allowed to fail.
Any new regulations to deal with the possibility of a future crisis must also deal with political reality. Minimum capital requirements on all banks can stabilise the banking system. However, a policy that just targets the big banks is unlikely to succeed.
Rodney Maddock is Vice Chancellor's fellow at Victoria University and adjunct professor of economics at <a href="https://www.monash.edu.au/" target="_blank" style="line-height: 1.3em;">Monash University</a>.
Stephen King is professor, Department of Economics at <a href="https://www.monash.edu.au/" target="_blank" style="line-height: 1.3em;">Monash University</a>.
Stephen King and Rodney Maddock received funding from CIFR for this project.
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>.
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