Investment borrowers will be the target of special measures to “rebalance” demand in Australia’s housing market, the Reserve Bank’s Assistant Governor Malcolm Edey told a senate hearing this morning.

Dr Edey told the Senate’s Economic References Committee that the central bank was concerned about the “disproportionate” growth in investor borrowing in the housing sector, but he refused to be drawn on the precise nature of the measures under consideration.

“Something will be done – I’m confident of that,” he told the committee.

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Dr Edey confirmed that the RBA was in discussions with the Australian Prudential Regulation Authority to finalise so called “macro-prudential” measures to encourage banks to rein in lending to investors.

“The discussions are ongoing so it is hard to be specific at this stage,” he said.

The focus of the measures will be on crimping investment borrowing, which now accounts for more than half of all new home purchases in Australia.

“We think there is an imbalance in the form of excessive activity by investors in the market which is out of proportion with their normal share in the housing market,’ he said.

Dr Edey warned that speculation in the Sydney and Melbourne property markets was presenting a risk to the Australian economy.

In response to questions from senators, Dr Edey said regulators would need to be careful to ensure that the new macro-prudential measures would have their main impact on investment activity in the two largest capitals and not have unintended consequences in other regions of Australia.

He indicated it was unlikely that APRA would introduce caps on loan to value ratios for owner-occupier home loans because the cause of speculation in the market was stemming from increased activity by investors.

Dr Edey told the committee that the measures targeted at investors should be “good news for first home buyers” who might have been priced-out of housing markets in the major capital cities.

The RBA’s head of financial stability department, Luci Ellis, said the measures under consideration were in the form of “incentives” for lenders to reduce borrowing activity of investors.

One possibility is that banks may be forced to set aside additional regulatory capital for loans made to investors.