Housing intervention a ‘rational response’, says NAB chair Philip Chronican

NAB chairman Phil Chronican says intervention in the hot housing market would be a ‘rational response’ by regulators.

NAB chairman Phil Chronican. Picture: Nikki Short

National Australia Bank chairman Phil Chronican says intervention in the hot housing market would be a “rational response” by regulators to cool surging prices, but such measures typically only work over short periods.

Mr Chronican told a Governance Institute of Australia event on Monday it was inevitable that in an era of record low interest rates - and central banks pumping funds into the system - that residential real estate and financial asset prices rose.

“We are running an extraordinarily accommodating monetary policy with interest rates that none of us can remember,” he said.

“We shouldn‘t be surprised that that’s going to show up in price inflation in some form or another. At the moment we are seeing that in asset price inflation, it’s not just real estate it’s financial assets as well... if you don‘t won’t asset price inflation you have to have some form of intervention.”

Mr Chronican cited the examples of Singapore and New Zealand where macroprudential policies were imposed by regulators to take the “heat out of the market”, although he cautioned they were not policy measures that were kept in place over the long term.

“If that (macroprudential intervention) happens, then as I said, it will be understandable but the underlying core of the problem is an inconsistency in approach between where we are with monetary policy and how that plays out in asset prices,” he said.

“It is also true that when we have those policies, they are typically only successful over relatively short periods of time and invariably involve some contradiction that emerges.”

Domestically during the last housing booms, the banking regulator imposed caps around the amount of investor loans banks could write, and at other times has looked to limit home loan borrowing with lower levels of deposit.

Australian Prudential Regulation Authority chairman Wayne Byres last month said the regulator was closely monitoring risk-taking in the banking industry, although there were no signs of stark near-term issues in lending standards.

He also warned the regulator’s job was not to “solve house prices” or “solve affordability”.

NAB chief executive Ross McEwan last week tipped house prices may rise “in excess” of 10 per cent this year, while his counterpart at ANZ Shayne Elliott said the bank expected a 17 per cent surge in residential prices in 2021.

CoreLogic data for March showed a 2.8 per cent jump in house prices nationally, the strongest result since 1988. The results and high auction clearance rates has stoked debate about regulatory intervention and boosting housing supply, to stem the growth in house prices.

Mr Chronican also cautioned on Monday that house prices were climbing as Australia was not seeing any population growth due to COVID-19.

More broadly, he said the post-pandemic recovery phase posed a risk to Australia of complacency and not seizing on much needed reforms and cutting red tape to facilitate an increase in business investment.

“It is the responsibility of leaders across business and at every level of government, to work together and ensure this is not the case. It is not a challenge for governments alone to solve,” Mr Chronican added.

“Historically, recessions have at least provided the opportunity to implement reform and ‘clear the pipes’ for the next cycle of growth.”

He highlighted the need for a more efficient and competitive tax and regulatory system and said small business should be relieved of some of the heavy compliance burden.

“Small business – the backbone of our economy – is spending too much time navigating multiple levels of government, holding back productivity and growth,” Mr Chronican said.

He also cited data that put two-way goods trade between Australia and China at nearly four times that with Japan, the nation’s number two trading partner, and pointed to “much broader opportunities” for Australia in the region.

Mr Chronican said while geopolitical and trade tensions remained high between China and Australia, both sides needed to remember the beneficial nature of the relationship.

“The danger at the moment is that we spend so long focussing on the things that separate us, that we forget how much we have in common.”