The Chief Executives of Australia’s big four banks expect property values to lift by between 10% and 17% this year but say regulatory intervention aimed at cooling the housing market isn’t necessary.

CBA, Westpac and NAB predict house prices will rise 10% in 2021, while ANZ is forecasting a 17% surge. Picture: Getty.

As part of their twice-yearly examination, the CEOs of the Commonwealth Bank, Westpac, NAB and ANZ fronted a parliamentary committee over two days, where they were asked about their response to the pandemic, the direction of the housing market and lending standards.

During questioning, the boss of Australia’s largest lender, CBA, said the bank had upgraded its forecasts for property prices this year, now anticipating prices to rise by 10% in 2020 – up from 8% previously forecast.

However, he said the bank wasn’t concerned about a deterioration in financial stability because conditions are very different to the last housing boom.

“There is a much higher concentration to owner-occupiers in terms of applications, funding and purchases,” said CBA CEO, Matt Comyn.

“More than 75% would be owner occupier… so the remaining 25% would be investors. That’s quite different to what we have seen previously,” he added.

Mr Comyn said investors, who are generally considered to be riskier than owner-occupiers, made up around 60% of mortgage applications at the bank in 2015, when regulators introduced lending limits to cool surging property prices.

Australia’s big four banks say the majority of lending activity is from owner-occupiers rather than investors.

ANZ is forecasting even greater price growth this year of around 17% but CEO Shayne Elliott said this isn’t cause for alarm.

“That is a significant move in a significant asset, we need to watch those things,” said Mr Elliott.

“I don’t think there’s cause for alarm. There is no evidence that there is anything imprudent happening in terms of lending standards or risk in the system, but we should be mindful that those things can occur, and we should keep an eye on them,” he added.

Along with low interest rates, supply and demand were identified as key drivers of property prices due to subdued listing volumes and increased buyer demand.

“There is not a lot of turnover in the market and stock is very tight so houses are being well bid,” Westpac CEO Peter King told the committee.

Calls for streamlined development approval process

National Australia Bank CEO Ross McEwan said the issue of lagging supply needs to be addressed by state governments, by streamlining the approval processes for land development and residential construction.

NAB’s CEO says states need to streamline approval processes for land development and residential construction to boost housing supply.

“It takes an average of five to seven years to get from a paddock outside a major city through zoned for development and for a house to be built on it. That is much too long, and state governments need to make it faster,” said Mr McEwan.

“We need to work out how to get more stock on the market faster because this is a supply issue,” he added.

Outlook for lending

All four CEOs agreed supply constraints, low interest rates, high levels of household savings and government policies are fuelling house prices, but say it’s unlikely to lead to additional risk because record low interest rates are allowing customers to pay down debt faster.

Still, financial regulators are closely monitoring the market for any signs of deterioration in lending standards.

In the past, the prudential regulator APRA introduced limits on investor lending to reduce risks to the financial system.

But with owner-occupiers now making up the bulk of new applications, economists say any macroprudential measures will need to take a different approach.

ANZ economist Felicity Emmett recently forecast regulatory intervention later this year, with a focus on debt-to-income ratios rather than investors.

“A soft touch approach from the regulator is likely in the first instance, followed by harder limits, most likely targeted at high debt-to-income loans,” said Ms Emmett.

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