So Westpac is going to charge non-resident borrowers a bit extra on their speculations in Australian property.

The very idea that our local banks would be extending credit to non-residents to speculate on Australian property is as insane as it sounds.

Why on earth do we want non-residents being extended credit by our banking system to acquire existing property?

Even if the non-resident is interested in buying a brand new off the plan property it does not make sense to be extending them ADI credit.

This is especially the case when our local ADIs are running offshore to borrow to support the “low rates” of their mortgage operations.

Only a nation of complete nutters would allow their taxpayer guaranteed TBTF banking system to expand their external liabilities (foreign debt) for the purposes of allowing foreigners to have a punt on residential house prices

If they want to “invest” in expanding the productive capacity of the Australia economy by building new housing stock that is fine but they should be doing so with foreign funds (outright purchase) or with loans from from foreign banks.

Capital inflows that support the expansion of the productive capacity of the Australian economy are generally fine.

But what is going on at the moment is nothing of the sort.

But if they did stop it wouldn’t the housing market collapse?

It probably wouldn’t collapse but if this increase is part of a deliberate program by APRA to wind down local ADI lending to non-residents altogether then it is probably sensible that they are taking it slowly. Having created a bomb they probably should take some care when defusing it.

Unfortunately, having watched APRA and the RBA turn the taps on full blast in 2013 and allow ADIs to extend credit to all and sundry to have a massive punt on house prices I am not inclined to give them the benefit of the doubt.

We still have not had the headland speech from Governor Lowe where he admits that house prices are largely a function of the credit regulation and credit access policies of APRA and the government and if we want more affordable housing we need to start by looking very closely at the way APRA supervises the lending activities of the ADI for residential housing with regard to who gets access to credit and how much.

The whole idea that the ‘invisible hand’ of the market can self regulate the credit creation activities of ADI is ready for the dust-bin of history.

If the banks want to be free of close credit creation regulation they can simply decide to give up their ADI status and operate purely as intermediaries.

In fact there is a very good argument that all home lending should be conducted by non-ADI financial institutions. That would end the era of residential house prices as the subject of economic mismanagement.