Treasurer ‘jawboning’ banks to ‘lower lending standards’

Treasurer Josh Frydenberg has been criticised for calling on lenders to facilitate “free-flowing” access to housing credit.

Speaking at a Senate estimates committee, Greens senator Peter Whish-Wilson accused Mr Frydenberg of using his position to pressure lenders and financial regulators into permitting riskier lending practices as a means to “reflating” the housing market and stimulating the economy.

“I think it’s no secret that the Treasurer, since the federal election, has been jawboning the regulators and the banks to lend more money, and there’s been a concerted push to lower lending standards even following the royal commission and what it discovered,” he said.

“I could describe it in a lot harder terms, like encouraging irresponsible lending, but I won’t use that term.”

Mr Whish-Wilson’s comments were quickly rebuked by Finance Minister Matthias Cormann, who stressed that regulators, including the Australian Prudential Regulation Authority (APRA), have reduced the exposure of lending institutions to riskier forms of lending.

Mr Cormann said that recent changes to lending guidance were “appropriate”, given the shift in market conditions.

“APRA [has] acted to strengthen household balance sheets and lending standards, and the policies have meaningfully reduced vulnerabilities,” Minister Cormann said.  

“We’re now in an obviously somewhat different position, and APRA is making further independent judgements in the context of a different environment.

“That is entirely appropriate.”

He added: “I completely and utterly reject the implications of your commentary. That is not what’s been happening.”

The senators’ exchange came amid questioning of Treasury secretary Steven Kennedy.

Mr Whish-Wilson asked Mr Kennedy if Treasury believed that a reliance on the housing market for broader economic growth was a threat to financial stability.

“Only three or four years ago we had a conversation with one of your predecessors, [John Fraser], and he mentioned the ‘b’ word around housing prices, the ‘bubble’ word,” the Senator said.

“It was widely reported at the time and seemed quite controversial, but it seems that within a few years, we’ve gone from being worried about house prices inflating and causing systemic risks – and of course we’ve had a royal commission since then and a number of regulators have tightened up housing lending and we’ve gone down that road – yet it seems as though now we’re putting hope in house prices reflating the economy.

“Do you see any risks from house prices going up?”

In response, Mr Kennedy said that it is too early to tell if the recent rebound in property prices is a sign of a reflation of the housing market.

“To put it in context, we’ve only seen a couple of months of [price] increases, not a long run,” he said.

“[In] terms of their broader impact, it’s certainly better to see them stable and increasing.

“You might be referring to concerns around asset prices when there’s very low interest rates in place and the potential for asset prices to grow quickly and it’s impact of financial stability – that is something that the Reserve Bank and other regulators watch very closely, and we do of course, but this is very early days; we’re just seeing some house price increases.”

Mr Kennedy added that Treasury and financial regulators would be closely monitor developments in the property market.

According to the latest data from CoreLogic, national home values rose by 0.9 per cent in September, following an increase of 0.8 per cent in August – the first monthly rise since April 2017.

The national improvement has largely been driven by an upturn in Sydney and Melbourne, where home values have increased by a cumulative 3.6 per cent and 3.5 per cent, respectively, over the past four months.  

The pick-up in dwelling values has coincided with a rise in home lending activity, with the Australian Bureau of Statistics’ latest Lending to Households and Businesses data reporting a 2.9 per cent rise (seasonally adjusted) in the value of home loans settled in August, which followed a 5.1 per cent increase in July.

[Related: Australia to lead global real estate bust]