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

I rise to continue some comments in relation to the Australian Prudential Regulation Authority annual report that covered a number of significant public-policy areas, not the least being the rate of growth in property lending in this country. For members who may be from outside of Sydney, who wonder, in a rather perplexed way, what is happening in the Sydney property market, your confusion is probably joined with the confusion of many in Sydney. The people in Sydney are very concerned—not just perplexed—at the rate of growth in house prices in that market. I might add that prices have been estimated to be growing at a rate of $2,000 a week, a simply astronomical rate of growth for house prices in that market.

I note the presence of some Victorian members in the chamber. While Melbourne is growing at a very strong pace, it is Sydney that is causing a great deal of concern, not only from an affordability perspective but also from the perspective of what it does to potentially limit decisions being made by the Reserve Bank of Australia in relation to interest rate movements, which the governor has said he cannot be held hostage to. He did not use those strident words—anyone who knows the governor knows that he is not prone to such dramatic expressions—however, the bank have indicated fairly strongly that they are not in the business of making decisions about future interest rates on the basis of what is happening in the Sydney market. However, while I said a few moments ago that the governor is not inclined to strong or strident speech, in the last week he characterised what was happening in Sydney as 'crazy'. I cannot recall in the times that the governor has appeared before the House of Representatives Standing Committee on Economics that he has used quite such strong terms, but he is reflecting a growing level of deep interest in what is happening in Sydney. Treasury Secretary Fraser during Senate estimates characterised what was happening in Sydney as a 'housing bubble'.

There will be a number of people who will make comment about what needs to be done about housing affordability into the long term. People are suggesting that things need to happen with negative gearing or in relation to reform of capital gains tax, right through to other people suggesting that the easiest way to deal with housing affordability is simply through supply. I certainly recognise that there will be a number of elements of this debate and a number of perspectives brought to bear regarding housing affordability. I am mindful, too, of the Reserve Bank's observations on this. Deputy Governor Philip Lowe has indicated that one of the best ways to deal with housing affordability would be to improve the quality of transport infrastructure. I note the presence in the chamber of the member for Macarthur, a fellow Western Sydney resident—he is a long-time Western Sydney resident. He, like I, knows that the movement of people in Western Sydney is a massive challenge. I have driven through his electorate on the way to Canberra. It might be 5 am and there will be rows of traffic lights making their way from his electorate to Sydney, from the Hume to the M5 or the M7 or the M2. The member for Greenway knows this. She was commenting the other day about her early starts for a number of mobile offices she was conducting last week and how long it takes to travel from some parts of her electorate to others. Western Sydney members know, regardless of politics, that moving people is very difficult and we need to invest more. Regardless of your politics, we need to invest not just in roads but in making public transport work better. That will, in the longer term, have some impact on housing affordability because people are moving to where access is easier and the jobs are close. This is a long-term challenge that will bedevil both Labor and Liberal, regardless of politics and whether or not we are prepared to spend in the short term.

Negative gearing, capital gains and housing supply are all long term. Right now, I get a lot of real estate agents in my neck of the woods out at Mount Druitt telling me that investors are crawling over each other. I had one real estate agent tell me that nearly three-quarters of the sales he was doing were for investors. You can talk about negative gearing all you like, but that is not going to change quickly. It will be an issue that will be controversial to deal with. The question now is: are investors getting access to easy capital? I would say that, in some cases, when you look at the stats, you would be hard-pressed not to believe that that is not happening. If you look at owner-occupier growth in lending over the past 12 months and compare it to, for example, investor lending, APRA, the regulator, which is the subject of this discussion, said that it would set a benchmark of 10 per cent. It grew 11 per cent last year and owner-occupier lending grew at a shade over five per cent. The issue is: what is being done to keep a check on easy financing as it is occurring in the sector?

I am not just making these claims up. APRA themselves were looking at behaviour of lenders to investment lenders and they indicated that there was room for improvement in credit assessments. How do I know this? I refer to Wayne Byres, the chairman of APRA, in his 13 May speech to the COBA CEO and Director Forum in Sydney where, based on the hypothetical borrower scenarios that were put to a variety of lenders, he said:

The first surprising result from our review was the very wide range of loan amounts that, hypothetically, were offered to our borrowers. It was not uncommon to find the most generous ADI was prepared to lend in the order of 50 per cent more than the most conservative ADI.

That was 50 per cent more on an investment property alone. He then went on to say:

One significant factor behind differences in serviceability assessments, particularly for owner occupiers, was how ADIs measured the borrowers living expenses. As a regulator, it is hard to understand the rationale for large differences in what should be a relatively objective, and extremely critical, metric.

And so we are seeing the treatment of other income sources having an impact on lending decisions. Other areas of interest for the regulator were the discount, or haircut, applied to declared rental income; interest rate buffers; and interest-only loans and the growth in those loans. So the question has to be about what we see with the huge variability between lenders in what they are prepared to provide to investors.

Those investors are snapping up properties left, right and centre. It is a social issue in my area, because properties are being purchased and the competition between investors is raising the prices. Rent prices are growing very strongly in my part of the world, and I have low- and middle-income people being denied the opportunity either to purchase or to rent and being forced further and further out on the urban fringes.

This is a social issue. I am not the only one to observe this—other people are as well: regulators and people like the Treasury secretary are observing that these are social issues. And what is the regulator prepared to do? APRA are making all sorts of excuses as to whether they will actually act. Firstly, they note that the rate of growth is slowing to about 10.4 per cent; they think that the 0.4 per cent will not make much difference and will not compel them to act.

The other point they make is that if they do act to try to curb individual lenders then they will impose macroprudential tools in the form of increased capital requirements on those lenders, but they will not be transparent and open about it. They will not report those actions to the market and they will not report those actions to shareholders. If there are lenders that are prepared, in some cases, to lend 50 per cent more than more conservative lenders—if they are feeding what has been described as a 'market frenzy'—and APRA is simply not prepared to report on that publicly then that is an issue of concern. It raised eyebrows at the committee, and I note that regardless of the politics on the committee, a number of us expressed surprise that APRA would do this behind closed doors. APRA's claim is that they do not want to cause particular problems in terms of the market standing of individual lenders. But if these lenders are behaving in a way that is creating unserviceable loans, then if interest rates move upwards—and no-one is suggesting that will happen in the short term—will the serviceability be achievable for people, what will happen to loans and what is the broader economic impact of that?

It is simply untenable that those lenders are not dragged out into the public and exposed for their lending practices, and that APRA is prepared to countenance this. I do not think this is realistic. The behaviour of those lenders outside the bounds of what conservative lenders are prepared to do is a potential economic issue, and it needs to be dealt with. I am very concerned about APRA seemingly dragging the chain on this, or seemingly not being prepared to act in a transparent way. I do not think that this is the end of this discussion.

Debate adjourned.