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The key to fixing Australia’s overheating housing market is to slow down credit, bank CEO says

  • House prices in Australia doubled in the 12 years to the end of 2016.
  • Regulators have decided to force banks to take fewer lending risks.
Melbourne, Australia.
Getty Images
Melbourne, Australia.

Reducing the flow of credit will solve Australia's soaraway housing market, the chief executive officer of National Australia Bank told CNBC Wednesday.

House prices in Australia doubled in the 12 years to the end of 2016, making it increasingly difficult for first-time and younger buyers to get onto the property ladder. As a result, regulators have decided to force banks to take fewer lending risks.

National Australia Bank CEO Andrew Thorburn said this had been the right approach. "What we have seen is the banks and the regulators slow down housing creditor, it's down to about 5 or 6 percent now," he said.

"That's probably sustainable and I think that's good thing because what it means is we have been able to ease into this," Thorburn added, noting a small drop in house prices recently.

Data from CoreLogic, a financial services company, showed Monday that prices in Australia have dropped 1.7 percent this year, after a modest reversal late last year.

Furthermore, data released this week by Moody's Analytics showed that house prices will continue to fall, with Sydney set to see a correction in prices in the next year, the Sydney Morning Herald reported.

Meantime, the government should also boost infrastructure and broadband expansion to ensure that house prices continue on their downward trend, Thorburn said.