John Alexander (Bennelong, Liberal Party) Share this | Link to this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee's report, entitled Review of the Australian Prudential Regulation Authority annual report 2014 (second report), together with the minutes of proceedings. This report follows a hearing with the chairman and other officials of the Australian Prudential Regulation Authority, APRA, on 20 March 2015 in Canberra.

The House of Representatives Standing Committee on Economics is pleased to continue its oversight of Australia's prudential standards for the banking, insurance and superannuation sectors through this review of APRA.

It was pleasing to learn at our recent hearing with APRA that the Australian financial sector has continued to demonstrate stability overall. However, there are clearly some emerging risks in the housing market which need to be carefully monitored.

The committee notes that APRA has recently written to authorised deposit-taking institutions to outline its plans around sound lending practices. An increased scrutiny of mortgage portfolios is an appropriate response to this issue and we will be requesting updates on APRA's activities and processes in this regard at future hearings.

The progress in implementing the new prudential standards through the Stronger Super reforms is of continuing interest to the committee. APRA stated at the public hearing in March that the superannuation industry's approach to managing conflicts of interest needed to be improved.

We also note from our discussions with APRA on its oversight of the super industry that new disclosure requirements are yet to be fully implemented and enforced. We welcome APRA's undertaking that it is continuing to monitor the efforts of this sector to strengthen governance and risk management frameworks and practices.

The prudential responsibilities of the Private Health Insurance Administration Council will be transferring to APRA in July of this year. APRA has outlined the resourcing of this transfer and its proposal to implement only the minimum changes required to achieve it. The committee will be monitoring this transition with interest over the coming months.

The outcomes of the Financial System Inquiry, FSI, and the work of the Basel Committee may well influence the future capital requirements of the Australian banking sector and we look forward to discussing this with APRA more broadly at the next public hearing.

On behalf of the committee I would like to thank the chairman of APRA, Mr Wayne Byres, and his colleagues for appearing at the public hearing on 20 March 2015. The committee looks forward to further discussions on upcoming prudential issues at the next hearing with APRA on Friday 23 October 2015 in Canberra.

I also thank the committee secretariat for their tireless work, and my parliamentary colleagues, in particular the Member for Chifley in his capacity as deputy chair, for the collegial manner in which this committee operates. I commend the report to the House.

Report made a parliamentary paper in accordance with standing order 39(e).

Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Link to this | Hansard source

I also extend my thanks to the chair of the committee. Obviously there were a wide variety of views and issues that needed to be canvassed and he has managed to cover all those views in a very fair and even way. I appreciate his efforts, as well as the efforts of the secretariat and my committee colleagues from all parties.

Last year, lending for investment in residential real estate was roughly double that for owner-occupiers. If you want to see how that translates on the ground, on the weekend in Sydney the clearance rate for property purchases hit nearly 90 per cent of 1,120 homes taken to market, slightly higher than the week before. In Melbourne it was close to 80 per cent. SQM Research is reported today as issuing its estimate that house prices in Sydney will lift by about 15 per cent this year and about12 per cent in Melbourne. In the Financial Review the property analyst from SQM, Louis Christopher, is quoted as saying that the market is in a frenzy.

Much of the growth is being driven by investors who are getting access to finance in a relatively easy way, raising the eyebrows of the regulator, APRA, as canvassed in the comments that are contained in this report. APRA is taking a methodical but very slow-paced approach to dealing with what has been described, as I said earlier, as a market frenzy. The growth of house prices in two major cities is of great concern, particularly in terms of whether or not it is sustainable in the longer term. It is also creating social issues.

In the electorate I represent in this place, real estate agents often tell me that investors are well and truly taking the lion's share of new home purchases in areas like Mount Druitt. This causes a great issue in terms of affordability and young people getting a start in the market when they are being outbid by investors. It means that people get driven further and further onto the urban fringes, and there is enough evidence to show that governments at all levels take their time in investing in the type of infrastructure which the RBA even says will help in easing housing affordability—that is, better transport infrastructure close to employment.

So what is being done about it? APRA wrote to lenders in December, indicating it was going to start taking a position on this and calling on them to effectively report in on what they are doing. In many cases I would describe the very lukewarm response from lenders as being the equivalent of an auto email reply where they note the comments and get back to the regulator in due course. The regulator, as has been observed, has been taking more soundings about what is going on and has been concerned about the way in which different lenders lend to the same borrower and the amounts of money that are lent.

Their answer to this is that they are thinking about applying macro-prudential tools, which they informed us at the last hearing would involve higher capital requirements, well above what Basel is recommending and well above what the FSI has recommended would apply individually. What they did say, which caught us by surprise on the committee, was that they will apply these tools individually, which is not an issue so far as they will do so individually, but privately—that this would not be a market reportable event to shareholders and that it would be kept behind closed doors.

If we want to see serious action on this, the lenders that are causing market frenzies need to be held to account. Certainly I can understand lenders chasing the other lenders that are out there trying to seize market share. Something has to be done. It is well and truly time for APRA to take the garden hose out and apply the regulatory cold shower on this frenzy that is occurring. They cannot do it behind closed doors. They need to be transparent. They need to ensure that lenders lend responsibly and that we do not have an artificial driving of growth through investment in residential property that has an impact on housing affordability. There is also a concern from an economic perspective about how it is skewing things, particularly in Sydney and Melbourne. The RBA is often being questioned as to whether or not it will continue to drive down interest rates and whether or not that will have an impact on housing prices, for instance, in two big markets. It is a big issue. We certainly think APRA needs to move and to move on it effectively, properly and also do it transparently.

Russell Broadbent (McMillan, Liberal Party) Share this | Link to this | Hansard source

The time allotted for statements on this report has expired. Does the honourable member for Bennelong wish to move a motion in connection with a report to enable it to be debated on a later occasion?

John Alexander (Bennelong, Liberal Party) Share this | Link to this | Hansard source

I moved:

That the House take note of the report.

Russell Broadbent (McMillan, Liberal Party) Share this | Link to this | Hansard source

In accordance with standing order 39, the debate is adjourned and the resumption of the debate will be made an order of the day for the next sitting. Does the honourable member for Bennelong wish to move a motion to refer the matter to the Federation Chamber?