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

I rise to speak on the review of the Australian Prudential Regulation Authority annual report. I draw attention initially to the letter from APRA to the banks. It says:

There are a number of additional regulatory and supervisory tools that APRA can apply to address emerging risks, building on the enhanced monitoring and review of recent years. These include additional supervisory monitoring and oversight, supervisory actions involving Pillar 2 capital requirements for individual ADIs, and higher regulatory capital requirements at a system-wide level. Beyond this, there are also more direct controls such as regulatory limits on lending activities, as introduced in other jurisdictions to manage risks emerging in the housing market.

At this stage, APRA does not propose to introduce increases in system-wide capital to address current risks in the housing market, or introduce new regulatory limits, although we will keep these options under active review. Based on our current assessment of the risk outlook, however, APRA considers that it is necessary to further increase the level of supervisory intensity in this area, to reinforce sound lending practices, with a particular focus on some specific areas of prudential concern.

The area of concern that I would like to speak to is in this letter, where there is a concern regarding increased lending to investors. In this letter, it is stated that:

In the current economic environment, prudential risks in the housing market appear to be increasing. Interest rates remain at historically low levels, household leverage remains high, and housing loans represent a large and increasing concentration on many ADI balance sheets. Strong competition in the housing market is also evident, which is accentuating pressure on lending standards. Against this backdrop, housing credit growth has accelerated, with lending to property investors particularly strong; the Reserve Bank of Australia (RBA) has noted that this could be funding additional speculative activity in the market. These forces have contributed to strong house price growth, particularly when viewed against the more subdued growth in household incomes.

While the work of APRA has been effective and ostensibly was undertaken to protect our banking system, which is correct, the collateral benefit that this restriction in lending has had, particularly to investors, is a cooling of the marketplace.

The problem that has arisen, as noted here, is that at this time, when we have interest rates lower than many rental rates in markets, speculation has driven prices out of the range of a homebuyer. More and more properties being held by fewer and fewer speculative investors would appear to raise the concern of further volatility. The fact that we are getting further away from the traditional ratio of four years of average income buying an average home in Australia, to the point where we are now approximately at a 12 to one ratio, should give further reason for concern.

So while APRA should be congratulated on the work that has been done to ensure the security of our banks, in fact giving some meaning to the saying that money is safest in banks, there is a great need for further vigilance to protect the value of homeownership and investment in the time that no doubt will come when interest rates go up, because it would appear that what has driven the investor market—lower and lower interest rates—will cool when interest rates return to traditional levels. While the work that has been done should be applauded, we need to be ever vigilant. I look forward to their continued work in this area.

Melissa Price (Durack, Liberal Party) Share this | Link to this | Hansard source

The debate is adjourned, and resumption of the debate will be made an order of the day for the next sitting.