EMMA ALBERICI, PRESENTER: Government MP Kelly O'Dwyer is the chair of the House of Representatives Economics Committee. The Reserve Bank comes under her purview. Currently the committee is investigating the impact of foreign investors on the housing market. She joins me now from Melbourne.

Kelly O'Dwyer, thanks very much for your time.

KELLY O'DWYER, CHAIR, STANDING COMMITTEE ON ECONOMICS: Great to be with you, Emma.

EMMA ALBERICI: Are house prices in Australia too expensive?

KELLY O'DWYER: Well certainly house prices in Australia are reasonably high and we have seen that - that serious impact of high house prices on particularly first home buyers trying to get into the housing market. What we're currently looking at at the moment is the impact of foreign investment and how that applies to residential real estate. We have an existing framework at the moment that says, on the whole, foreign investment is really beneficial where we can add to dwelling stock, which means the stock that people can either purchase or rent. And it's also beneficial where it has an economic dividend, where it adds to our economy through builders and suppliers being able to have more work. But we do have prohibitions on foreign investment as it applies to existing homes, prohibitions on non-resident foreign investors being able to purchase any home at all under that framework and restrictions on temporary residents being able to only purchase one home.

EMMA ALBERICI: We'll get into more detail around foreign investment shortly, but first I want to talk about the noise around the Reserve Bank. And the Reserve Bank board seems so alarmed by the state of the property market that they're considering new rules to make it harder to borrow money. Is that an overreaction?

KELLY O'DWYER: Well, look, what we have seen through the last three hearings where we have had oversight of the Reserve Bank is that the Reserve Bank have been very closely monitoring the housing sector. They have never ruled out using macroprudential tools. They have, in the past, been reasonably critical about the impact of macroprudential tools as they have been applied, for instance, in New Zealand. But what they have suggested in the most recent Financial Stability Review is that they're going to work with APRA, the prudential regulator, to ensure that there are safe lending standards and that seems entirely appropriate to me.

EMMA ALBERICI: Does the Government share the RBA's concerns that people might be overextending themselves, borrowing money that they won't necessarily be in a position to pay back?

KELLY O'DWYER: Well, look, the Reserve Bank and also APRA are both independent organisations and they will make their own assessments as to this. They're doing their job and I think it's appropriate that they go about doing their job to ensure financial stability. It's very important for our economy to have strong confidence in our financial system and both APRA and the Reserve Bank are important pillars in that.

EMMA ALBERICI: Everywhere else in the world, the Global Financial Crisis was called a banking crisis because it was about the subprime lending - again, people borrowing money they couldn't necessarily afford to pay back. So I'll draw you back to my initial question, which was: does the Government share the concerns of the RBA that that potentially is happening again this time in Australia?

KELLY O'DWYER: Well I don't think that the RBA have in fact said that we've got an analogous situation to that that was occurring overseas in the US with the subprime market. We have a very different system here. We have a very strongly regulated prudential market, we have a strong banking sector and we have a strong risk assessments that apply to people who are taking out loans. We certainly don't have the sort of loans that we saw with Fannie Mae and Freddie Mac where people were able to basically get loans that they couldn't afford to pay back, and when they got into financial trouble, simply walk away. That's not the system we have here in Australia.

EMMA ALBERICI: So why is the Reserve Bank now calling for these sorts of macroprudential changes, which are basically tighter lending rules?

KELLY O'DWYER: Well, I think it's prudent to always look at the lending rules that apply and to make sure that they are appropriate for the time. They have been monitoring this situation over some period, over the last 12 months at least, during the three oversight hearings that we have held with the Reserve Bank, and I think that this is simply them doing their job as they are meant to do.

EMMA ALBERICI: Labor's Sam Dastyari wants to haul the RBA board before a Senate committee. Do they have questions to answer?

KELLY O'DWYER: Well, look, as I said before, we've had a number of oversight hearings. We have two public oversight hearings every year as part of the House of Reps Standing Committee on Economics responsibilities, we have direct responsibility for oversighting the Reserve Bank. We certainly asked them some very tough questions in the three-hour hearing that we have there. We also had private - we have private briefings as well with the Reserve Bank Governor twice a year and we put any questions that we need to to the Reserve Bank in order to make sure that we have confidence in exactly what's occurring with the Reserve Bank. But they are an independent organisation and it is appropriate that they are able to make these decisions based on the information to hand.

EMMA ALBERICI: What you're telling us seems to be at odds with your colleague, Nationals Senator Matthew Canavan, who today said that it was easier to get information on a typical bombing raid in Iraq and Syria than to understand the RBA's plans for new regulations.

KELLY O'DWYER: Well I have the greatest respect for Matt. I would say though he ought to perhaps read the transcripts that we've had of the oversight hearings for the House Economics Committee.

EMMA ALBERICI: Well investor loans are of the biggest concern to the Reserve Bank board. What role is negative gearing playing in pushing up house prices?

KELLY O'DWYER: Well, look, we haven't specifically focused on that particular question, but I know - I heard your earlier reports before about Saul Eslake calling for a change in the negative gearing rules. I don't see there being any need to actually change those rules. There are lots of unintended consequences that flow from changing rules such as negative gearing. For instance, you can actually have a dramatic impact on the rental market and people being able to rent housing if you were to make such changes. But any potential tax changes ought to be properly considered in the tax white paper, which is coming up. We don't have any plans to make changes to negative gearing. But any tax changes that need to be made need to be made holistically and that's appropriate for the tax white paper.

EMMA ALBERICI: And would you welcome a focus on negative gearing and its impacts, because Saul Eslake, who you just mentioned, who is the chief economist at the Bank of America, says that negative gearing doesn't do much to improve housing supply because investors generally buy established housing and there's no foundation to claims it improves the supply of rental housing?

KELLY O'DWYER: Well, you're quoting one economist. Emma, you could equally find quite a number of other economists who would give you a very different perspective on that.

EMMA ALBERICI: What's your perspective?

KELLY O'DWYER: Well my perspective is the current situation is working well and I see no reason to make changes to the negative gearing arrangements.

EMMA ALBERICI: But you'd welcome a focus in the tax white paper?

KELLY O'DWYER: Well I think when you're considering any holistic review of tax, you look at all issues on the table, although we have no plans as a government to make any changes to negative gearing.

EMMA ALBERICI: For the past four or five months, your committee has been considering the impact of foreign investors on property prices. Will rules need to change?

KELLY O'DWYER: Well we have some pretty strict rules in place at the moment and I just mentioned them at the opening when we were talking about this before, that there are prohibitions on non-resident foreign investors being able to purchase existing homes. What we've found out though, through the evidence that our committee has received, is that these rules have simply not been enforced through prosecution since 2006 by the Foreign Investment Review Board. I think there has been a failure of leadership of the Foreign Investment Review Board on this. I think they have dropped the ball. I think that if we have rules in place, those rules need to be properly enforced. That is the only way we can give confidence to the Australian people that our foreign investment framework is working as it should. And so we would be looking to tighten up exactly what occurs in terms of the enforcement penalties that can be applied, but also making sure that FIRB is doing its job.

EMMA ALBERICI: You've previously criticised the Foreign Investment Review Board, as you're saying now, for not being tough enough and not showing enough leadership. Foreign investors are not meant to be allowed to buy existing homes. Have you seen evidence to suggest they're getting around that particular rule?

KELLY O'DWYER: Well we've heard some anecdotal evidence that suggests that there are people who are deliberately contravening the rules. The problem is of course is that those people who are deliberately contravening the rules are simply not going to the Foreign Investment Review Board for approval. So it is quite a difficult and tricky area. The other problem here, Emma, too is that there aren't particularly strong disincentives under our penalty regime if somebody was to make either one purchase or multiple purchases. Under the existing rules, if FIRB did in fact prosecute somebody who had purchased one or more properties and they were not able to purchase those properties 'cause they were a non-resident foreign investor, it would take some time to go through the court process. And then, if that property had gone up in value, that individual would be able to keep the windfall gain that they had made through the increase in value of that property. Now that's simply ridiculous and clearly needs to change.

EMMA ALBERICI: So how are these foreign investors circumventing the rules?

KELLY O'DWYER: Well, there are a number of people who are simply not going to the Foreign Investment Review Board for screening. And if they're not going to the Foreign Investment Review Board for screening, they simply don't think that there is any possibility that they'll be caught. They think that there's probably not a strong compliance regime in place, and I have to say, I think our compliance and auditing regime is not as strong as it needs to be. We are looking at how that can be enhanced. That will go to the recommendations that we make as part of our committee's review and report that will be handed down later in the year and this is a critical area to ensure that people have confidence.

EMMA ALBERICI: I saw reports after your initial comments that the Foreign Investment Review Board only has something in the order of eight people to police the whole country and the foreign investment in the area of housing. It does seem a big task for just eight people.

KELLY O'DWYER: Well, look, I would certainly accept that they probably do need some more resources, but I don't accept that they were not able to undertake any prosecutions since 2006. There were prosecutions that took place with the previous coalition government over that time, divestments of properties for people who had purchased contrary to our foreign investment framework. I simply don't accept that they - their whole job there was to do nothing and I don't think that that is an excuse. I do think though that more resources are needed for the Foreign Investment Review Board. One of the issues that we have been looking at is that with the applications that go before the Foreign Investment Review Board, that perhaps there ought to be a modest fee that is associated with those applications and that that money could be hypothecated to FIRB for their compliance, auditing and enforcement activities.

EMMA ALBERICI: Because at the moment, as I understand it, if someone buys - a foreign investor buys an Australian residential property, they actually have to proactively go to the Foreign Investment Review Board for - to apply to undertake that investment. If they know they're contravening the rules, it's highly unlikely, isn't it, that they're actually going to put themselves forward?

KELLY O'DWYER: That is exactly right, which is why we need to have better data, better information, which is another reason why one of the key recommendations that our committee will be making is to have a national register where, at the transfer of land, you actually understand who is purchasing that residential property and that that data can be matched against all sorts of other data, including data from the Immigration Department, where you have, for instance, temporary residents who might've left the country and who, under our current existing foreign investment framework, need to sell their property within three months of leaving - some of those people are not doing that and the data isn't being matched, which means those people, at the moment, are not being caught.

EMMA ALBERICI: How widespread is the abuse of the rules?

KELLY O'DWYER: Well it's very difficult to put a finger on it and that's why we have been receiving as much evidence as we can from various different sources, matching that evidence up and looking to make recommendations that strengthen our framework.

EMMA ALBERICI: We have to leave it there. Kelly O'Dwyer, thank you very much. Of course, coming to us from Canberra, not from Melbourne.

KELLY O'DWYER: Great to be with you, Emma.