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Seeing red over bank blacklists: Andrew Cocks

Citi recently named 87 'blackspot' suburbs across Australia, i.e. postcodes with suspected oversupply. Richardson & Wrench's Andrew Cocks explains why the blacklisting of postcodes by major lenders is an impediment to the future and sustainable growth of cities.

Planning for population growth in our capital cities is no easy task. There will always be entrenched opposition to change particularly when the benefits to many have to be balanced against the costs to a few.

As Australia’s population has grown, and the shift to the cities become more pronounced, we’ve had to adjust what it means to achieve the Australian dream of home ownership. We’re growing up not out, playing catch-up with the rest of the world where the major global cities have always been densely populated.

The government response to this challenge has been to concentrate its efforts on identifying priority growth areas, investing in the required infrastructure and providing the planning framework to enable private developers to create more housing. It is a more considered approach than much of our more recent development and owes much to the place-making principles that have enabled much more heavily populated cities than Sydney to develop into vibrant, welcoming and liveable communities.

To achieve this remodelling of Sydney, Melbourne and Brisbane, and accommodate many more thousands of people in a high-rise environment, requires a period of intensive development.

In an ideal world there is fine balance between supply and demand. When demand outstrips supply we have a situation like Sydney where the city sometimes feels like it is bursting at the seams and prices skyrocket beyond the reach of both first home buyers and renters.

When the converse occurs, and supply outstrips demand, there is the risk of falling property values, hurting both lenders and buyers.

Herein lies the challenge and opportunity in real estate. Without the banks’ support for the acquisition of property there are very few buyers. And without buyers the grand vision of cities alive with people remain just that. A vision never realised.

The blacklisting of postcodes by major lenders is a very real impediment to the future and sustainable growth of cities. The most recent blacklist published by Citi, of postcodes where a deposit of 35 per cent will be required, features many of the suburbs where Government has committed to infrastructure investment and therefore development is most intensive.

There are good reasons why so many apartments are being built in these priority growth areas. They are alongside transport nodes, there is public and private money pouring in to make them enjoyable places to live and work and they are in demand by buyers.

But those buyers quickly disappear if the funds needed to acquire them dries up. Of course it’s reasonable that lenders should take a prudent approach to lending to protect both the customer and their shareholders. But the blanket blacklisting of a suburb, that carries with it the potential to thwart efforts to make our cities fit for the future, runs counter to their wider community obligation.

A far better approach would be to confine risk assessment to the individual not the postcode otherwise we will simply perpetuate the already shrinking pool of Australians who own their home.

When you’re starting from scratch, a 35 per cent deposit is an impossibly high hurdle to overcome. It immediately negates government efforts to assist first home buyers and makes it harder to increase supply and moderate price growth in an orderly fashion.

Banks have done exceptionally well from the current housing boom. Their loan books are full and shareholders well-recompensed but let’s not forget that their activities are being underwritten by the public purse.

Citi is not the only financial institution to establish postcode blacklists. National Australia Bank and AMP did so early this year and we can be certain that others have quietly altered their lending policies having lost their appetite for lending in a particular location.

It is fortunate that there are 100 or more bank and non-bank lenders in Australia and anybody who has their heart set on an apartment in up and coming inner-city locations should shop around and not be deterred. If you’ve done your research, feel confident that your purchase is based on sound principles and have factored higher interest rates into your capacity to repay a loan, then trust your judgement.

Property has never guaranteed an entirely smooth ride – it comes with ups and downs – but there would be few who regretted owning the roof over their heads.

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