A sense of urgency has crept into the tone of those at the helm of the big four banks, as they tell the federal government action is needed to cool the property market.
Holding more than $1 trillion in Australian mortgages between them, the CEOs of the major banks told a federal government economics committee on Thursday that they were growing increasingly anxious over surging prices.
“We think it would be important to take some modest steps sooner rather than later to take some of the heat out of the housing market,” Matt Comyn, CEO of the Commonwealth Bank, said.
While Comyn added he didn’t think the property boom in the past 12 months was troubling, he did concede it wasn’t sustainable.
“I am not concerned about the period just gone. But in terms of increasing housing debt and increasing house prices we are increasingly concerned.”
Comyn pointed out, like economists before him, that house prices have become entirely divorced from the broader economy, at a time when Australia’s two largest states are under stay-at-home orders.
“In the significant period of lockdown in Sydney, Melbourne, we have seen big falls in consumer and business confidence, as you would expect,” Comyn said.
“What has surprised me … [is that] I’m not seeing much of a slowdown in terms of [loan] applications and funding. You can see the market is still very active.”
Yet those same lockdowns have plunged many Australians into a precarious financial position. The number of borrowers who had entered into hardship arrangements with their bank tripled in the month of August, according to figures published by the Australia Banking Association (ABA).
This week, the Reserve Bank of Australia (RBA) gave its sharpest warning yet that the cocktail of sky-high property prices and growing household debt could threaten Australia’s financial stability.
While it has previously raised the prospect of launching a lending intervention with regulator APRA, the reception to it has been muted.
But should Australia reintroduce lending restrictions, it would be “prudent” to move quickly, Comyn advised.
“It is much harder to act when the market is accelerating versus taking interventions to try to avoid too much of an acceleration,” he said.
“We think it would be important to take some modest steps sooner rather than later to take some of the heat out of the housing market.”
Comyn’s sentiments were echoed by ANZ CEO Shayne Elliott, who suggested borrowers were leveraging themselves to a greater degree.
“There has been an increase in the number of people who are taking on more debt relative to their income,” Elliott said.
“We’re taking more time to be careful, to ask more questions, to really assess whether people do have the capacity to take on the debt they would like… we’ve lost a bit of market share because of that.”
He added that sharply rising prices “make it harder to enter into the housing market”, which could price out younger Australians and “raises the issue of greater economic disparity”.