"If it's adopted by all banks, it will make it more difficult for all developers to fund construction of land for first home buyers and second home buyers," said David Payes, the managing director of developer Intrapac Projects and president of lobby group Urban Development Institute of Australia, Victoria. "We need to supply land to keep housing at affordable prices."

Unlike tougher lending policies reported last week, the bank's latest move would not hit apartments but housing developments in the growth corridors of Sydney, Melbourne and Brisbane. New detached home sales rose last financial year to 73,507, a four-year high and more than four times the number of units and apartments sold.

New housing developments carry their own risks, however, and the banks have been burnt by falling land values before. Land values fell 5 per cent in the first half of 2009 after new dwelling commencements dropped 17 per cent from 159,730 to 132,580 the previous year, Housing Industry Association figures show. The tightening by the Commonwealth Bank may be an attempt to pre-empt any loss in land value caused by the building boom.

The change won't just target first home buyers. Investors account for as much as 45 per cent of buyers in new housing developments. While it will constrain supply, the change is consistent with reductions in lending to apartment investors.

Danni Addison, head of the Victorian Urban Development Institute, says the CBA's plan the move – which will make things harder for smaller players than larger ones – will have wide-ranging consequences. Eddie Jim

'Natural part of cycle'

"This is just a natural part of the cycle," said Rod Fehring, the executive general manager for residential at developer Frasers Australand, one of the country's largest. "It's prudent for banks to be careful of their exposures to different segments of the market."

Many in the market are concerned. "There is no justification for cutting off the credit tap for new residential development," said Harley Dale, HIA's chief economist. "It would be very concerning at this point in time if it became more difficult for people to get into a new home, which is the end issue here."


The move would only worsen a situation in which house prices are already rising faster than incomes, Dr Dale said.

"There are going to be fewer people that can get into a new home in greenfields developments than would otherwise be the case, which does nothing to improve housing affordability," he said.

The bank said the move was simply part of a constant review of its loan policies.

"In line with our responsible lending commitments, we constantly review and monitor our lending standards to ensure we are maintaining our prudent lending standards and meeting our customers' financial needs," the bank, the country's largest mortgage lender, said in a statement.

Crucial step

Under the new policy it will only accept valuations on lots – a crucial step in the mortgage approval process – after an external valuer has physically examined the site.

"We believe a more accurate measurement in getting a valuation on unregistered land at an appropriate time should instead be based on the valuer having access to the estate and being able to physically identify the allotment," it said in the presentation.

Previously, the bank would commit to a loan with an assessment based on the development plan, as early as 12 months before a lot was accessible.

But developers said the move – which will make things harder for smaller players than larger ones – will have wide-ranging consequences.

"This action directly targets the production of new housing stock; jobs, supply, prices and therefore the broader economy will feel the effects of the bank's action," Victoria chief executive Danni Addison said.

"It is simply neither justifiable nor understandable and could very well lead to a significant contraction in supply and a reduction in new housing options for buyers and renters."