The Property Council of Australia has challenged the Financial System Inquiry’s warnings that housing poses systemic risks for the economy.
The council argues in its second submission to the FSI that household leverage does not pose a systemic risk to Australia’s financial system because banks have “robust risk management processes”.
“Domestic housing finance lending in Australia has been managed prudently by the banking sector,” the council said.
“The interim report emphasises that ‘Australia has had a relatively stable financial system for most of the past two decades’,” it said.
“The interim report also indicates that the combination of a stable macroeconomic environment and prudent risk management by financial institutions has ensured balance in the system.”
However, the FSI interim report plainly warns that housing is a potential source of systemic risk for the financial system and the economy, and could erode bank balance sheets and impact new lending.
The FSI called for further information about what measures can be taken to mitigate the effects of developments in the housing market on the financial system and the economy.
In response, the Property Council said that “financial instability from housing is a myth”.
In addition, the council argues that household debt is being managed effectively and that property prices are “fair”.
“The Reserve Bank has indicated that many households have used lower interest rates to continue paying down their mortgages more quickly than required,” it said.
“As a result, the aggregate mortgage buffer has risen to almost 15 per cent of outstanding balances, which is equivalent to around 24 months of total scheduled repayments at current interest rates.
“This suggests that many households have considerable scope to continue to meet their debt obligations even in the event of a temporary spell of reduced income or unemployment.”
Commenting on affordability, the Property Council pointed to RBA figures that show real house prices have increased at an average annual rate of slightly less than 2.5 per cent since 1955.