“The Government should establish an RBA-style Board to oversee APRA with a target for mortgage arrears of between 2 and 3 per cent,” said HIA Chief Economist, Tim Reardon.

In its submission to the Senate inquiry into the financial regulatory framework and home ownership, HIA identified that a decade of additional costs has restricted competition among banks and made it increasingly expensive for them to lend to first home buyers.

“Just as zero inflation is not the RBA’s goal, zero mortgage delinquencies is an unattainable and undesirable goal for APRA,” added Mr Reardon.

“Despite this, home buyers in Australia have been subjected to more than a decade of additional restrictions on lending that have reduced competition among banks issuing loans, especially for first home buyers.

“Mortgage arrears in Australia remained exceptionally close to zero through the GFC and the pandemic, but regulators continue to impose additional constraints on lending, competition among banks and restricting housing supply.

“In recent months the Reserve Bank stated that, ‘Despite pressures on households’ budgets, almost all borrowers have been able to continue to service their debts. While housing and personal loan arrears have increased since late 2022, they remain below their pre-pandemic peak.’

“Overall, less than 1 per cent of all housing loans are 90 or more days in arrears, and less than 2 per cent of highly leveraged borrowers – the group of households most at risk – are in arrears.

“Every home build in Australia is built with the support of a stable and reliable financial sector. It is a cornerstone of a stable economy and necessary for the building industry

“The problem is that ongoing regulations have forced banks to eliminate much of the flexibility and competition in the mortgage market that made home ownership accessible for households of variable credit quality, such as first home buyers.

“This ‘belt and braces’ approach to macro-prudential restrictions is needlessly restrictive and increasingly limits lending only to those that already own at least one home, pursuing financial system stability at the expense of first home buyers.

“Ensuring that home ownership remains an attainable goal for Australian households is an equally important objective that has not received adequate recognition among financial regulators.

“Banks should be making the decision on who is able to service a mortgage, not the Australian Government. Banks are well placed to make this assessment and are protected from delinquency through mortgage insurance.

“Requiring regulators to target a rate of mortgage arrears of between 2 and 3 per cent, or double the current rate, will prioritise home ownership as well as financial system stability.

“Allowing more first home buyers to access a loan, doesn’t create demand for homes or increase house prices. It should allow more households to move from renting to home ownership, but it does not materially change the balance of supply and demand in the established house market.

“The volume of apartments commencing construction is now around half of the volume commenced prior to the APRA and ASIC interventions.

“The regulatory system is in place to ensure that the financial system serves the needs of the Australian people. Australians expect the financial system to facilitate home ownership for all, not just those who regulators consider ‘worthy’,” concluded Mr Reardon.