The recent accidents with regards to MP’s citizenship seems to have opened the door wider on a potential inquiry into banking. That may happen, but in my view it misses the point.
The clear and present danger which we are now facing relates to housing. We have been tracking the building risks in the sector for many years, and finally even the regulators have gotten the message, see ASIC, APRA and RBA. Our regulators have failed us and the proposal from Murray’s FSI for an audit of their effectiveness fell on deaf ears. The Council of Financial Regulators suffers from group think.
Beyond that, if you look back at the recent pieces of evidence, including the ANU work on supply and demand (more supply than you might think); the excellent Industry Super Report on Housing Affordability (it IS complex) and the massive debt burden households have; plus homes are getting smaller and more high-rise.
The myopic approach from Government (Federal and State) means we have no long term planning, no joined up thinking and ad hoc “fixes” as for example in the QLD election campaign and a deliberate failure to address the fundamentals.
Worse, our banks are super-sized building societies, with some lenders holding up to 70% of their loan book exposed to the property sector. This means they are less willing to lend to productive businesses who can create real growth. Banks underestimate their portfolio risks. Defaults are rising even now at current low rates and the trajectory is higher. Yet more than half of dividends in Australia come from the banks.
There are so many stakeholders with vested interests, it is no surprise we just muddle through. Weird when you think that based on the size of our island continent, per capital we have more land than almost anyone. Lending will continue to grow at three times income/cpi.
It seems to me we have two potential circuit breakers.
The first is we wait for the inevitable home price crash – by at least 20% leading to misery for households and banks. Remember 10 years after the GFC, Ireland is still wrestling with the property falls there. Almost certainly there would be an inquiry post the apocalypse which will happen 2-3 years after rates start to rise if the GFC is an analogue.
The second option is a proper root and branch review now. Bite the bullet to look at the whole housing box and dice, to include regulation, taxation, planning, lending and the rest. Put aside political infighting, and get the strategy right. That way we might just escape the inevitable crunch, or at least mitigate the impact.
If you want an inquiry, best pick the right horse. Or we just keep doing the same, just do not expect a different outcome.
