The head of the Abbott government’s financial system inquiry, David Murray, isn’t surprised that financial regulators are concerned about soaring house prices in parts of Australia.
The Treasury secretary, John Fraser, recently said “unequivocally” that a housing bubble existed in Sydney and the high-end of Melbourne, while the Reserve Bank’s governor, Glenn Stevens, last week described some of things that are happening in Sydney as “crazy”.
Murray, a former Commonwealth Bank boss, said Australia wasn’t facing the same set of circumstances as the US before the 2008-2009 global financial crisis (GFC).
But mortgage lending by the banks had increased as a proportion of their total balance sheets since the GFC and the amount of capital set aside for that hadn’t moved much.
At the same time, house prices were high relative to personal incomes and had grown rapidly in Sydney and Melbourne.
“So these things would put the regulators on notice of potential problems in the housing market,” Murray told Sky News on Sunday, noting that the Australian Prudential Regulation Authority has already taken some steps to deal with home lending.
Housing affordability was a key issue dominating the political debate last week.
The finance minister, Mathias Cormann, has said increasing housing supply with the help of state governments is one of the government’s top priorities.
He said the government must provide the right settings so that individuals could be successful, including having the best possible opportunity to access the housing market.
“Working with the states on initiatives to increase supply that will help make access to housing more affordable,” he told Sky News.
He reiterated that the government had no plans to make changes to negative gearing, saying it would be “counterproductive”.
He said if it’s harder for people to invest in the private housing market it will reduce the supply of rental accommodation and increase rents.
“The Hawke government tried to make change in this space and very quickly had to reverse that position because of the effect it had on rental prices,” he said.
Murray said Australia couldn’t look at negative gearing and capital gains tax on housing in isolation, it would have to consider how they interacted with other taxes.
Murray also said he would prefer the Abbott government respond to his financial system inquiry recommendations sooner rather than later to prevent market speculation.
Cormann said a response to the inquiry was still months away.
Murray said while his report was a blueprint for the future of Australia’s financial system, it was probably better for the government to clarify its position.
“In the markets, people will wonder about something and make decisions and guess which way the government might jump. So it is healthier to move on it,” he told Sky News.