Treasurer Jim Chalmers has vowed to address a big barrier that has stopped developers from building at a moment when the country is desperate to get new homes on the ground. 

Mr Chalmers has announced that he has formally asked the Australian Prudential Regulation Authority to update its guidance on lending when it comes to apartment block construction. 

Treasurer Jim Chalmers has announced changes to lending guidance impacting developers as well as those with education debts. Image: Getty

In 2017, the regulator issued guidance to banks stating that finance for construction of new unit blocks should depend on all properties being pre‑sold. 

This has been widely interpreted to mean that unless the block had reached 100% sold, lenders should be unwilling to finance the construction. 

Mr Chalmers noted that for smaller developers in particular, the guidance has served to stymie their ability to begin construction or even get projects off the ground. 

“Smaller developers often don’t have the capital to finance the start of construction without support from the banks,” Mr Chalmers said. 

In response to the Treasurer’s request, APRA has indicated that it will communicate to banks that “while it expects banks to consider the extent of pre-sales as part of prudent credit risk management, APRA does not expect 100 per cent pre‑sales”. 

The Australian Securities and Investments Commission has also indicated it will move quickly to implement changes to its guidance on lending laws. 

A popular move for housing advocates 

The news was positively greeted by members of the housing sector, with Master Builders describing the news as a “welcome step for all involved in the building and construction industry and supply chain”. 

According to the organisation’s CEO, Denita Wawn, the issue has regularly been serving as a barrier for those looking to build, with access to finance proving to be a big issue in high-density development. 

“We have heard from our members about the difficulty in accessing finance from banks without significant pre-sale of dwellings, which is unsustainable in the current economic environment and is driving investment out of the industry,” Ms Wawn said.

Moreover, Property Council chief executive Mike Zorbas added that any stimulation to apartment development would be welcome, given the current building data. 

“Australian apartment construction is half the volume it was in 2017/2018.”

“Just as access to a mortgage shouldn’t be the domain of only the super-wealthy, overly restrictive lending regulations shouldn’t hamper the ability to supply new homes when we need them most,” Mr Zorbas said. 

Smaller developers are expected to be impacted in particular as they are more likely to need help from banks to get projects underway. Image: Getty

Angus Moore, REA Group senior economist noted that prudential regulation is a complex area and so “providing more clarity and updating guidance is always a good idea”. 

The news will be well received by developers, with Mr Moore noting that the current high-interest rate environment has exerted pressure on the sector. 

“Financing is obviously critical for building new homes, and rates matter a lot for that. We know that building activity is one of the most interest-rate sensitive parts of economic activity, so the rapid increase in rates we’ve seen in recent years has certainly had an impact,” Mr Moore said. 

Education loans also in the spotlight 

In addition to relaxing the guidance around lending to developers, Mr Chalmers announced that he has asked APRA to review the way in which Australian residents who paid for their education through the government’s Higher Education Loan Program – and now carry a “HELP” debt – are treated by banks. 

“Currently, a barrier for young Australians to get into the housing market is the reluctance of banks to give them a mortgage. The [Australian Banking Association] has indicated that one reason for this uncertainty is the interpretation of lending regulations and guidance by APRA and ASIC,” Mr Chalmers said. 

APRA has confirmed it will start consultation soon on the treatment of HELP debts in serviceability requirements and debt reporting. 

Ms Wawn said she believed this change would particularly help those who had not yet been able to get a first foot on the property ladder. 

“Higher Education Loan Program (HELP) repayments are unfairly weighted in serviceability assessments and restrict the ability for first home buyers to purchase a home,” she said. 

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