Regulators likely to keep hands off housing boom

Reserve Bank governor Philip Lowe. Picture: Getty Images

Two key lines in Reserve Bank governor Philip Lowe’s monetary policy decision make it unlikely that macroprudential measures – or so called speed limits – will be reimposed to curb the boom in property prices, at least for now.

The first is that credit growth to owner-occupiers has picked up, with investors and businesses relatively inactive.

Just as important, however, is Lowe’s assessment that lending standards remain “sound”, even with rising prices and low interest rates.

This means conditions are fundamentally different to December 2014, when APRA and ASIC tag-teamed against the banks to reverse a systemic decline in lending standards.

The intervention was announced after a meeting of the Council of Financial Regulators, which will host one of its regular quarterly get-togethers on Wednesday.

The meeting between the RBA, Australian Securities and Investments Commission, Australian Prudential Regulation Authority and Treasury is only days after CoreLogic data showed national house prices surged 2.1 per cent in February – the biggest change in the index in 17 years.

Unlike the previous boom, the increase was nationwide, with the 2.1 per cent rise in regional markets overshadowing the 2 per cent lift in capital cities.

UBS economist George Tharenou was more concerned on Monday about the torrent of housing credit in January, up 10.5 per cent from the preceding month or 76 per cent since the trough in May 2020.

Tharenou said the trend had broadened to investors, with the investment bank’s base economic case now including a dose of macroprudential medicine.

It’s not an unreasonable bet but the hurdle for intervention is high.

The RBA and APRA have no mandate to contain asset bubbles or rein in house prices.

Further, in the current environment there’s a missing ingredient, and that’s elevated risk in lending standards and practices.

In 2014, just as now, price competition in the mortgage market had intensified, with banks extending larger discounts on their advertised variable rates to an ever-growing group of customers.

Non-price lending terms were also relaxed, according to the RBA, with the share of riskier loans to owner-occupiers on interest-only terms starting to kick up.

Investor lending had increased sharply – investor loan approvals in NSW had more than doubled since 2012.

While APRA strengthened its macroprudential policies in 2017, it removed the speed bumps on lending to investors and interest-only loans the following year after a sustained reduction in institutional and systemic risk.

Lowe’s view that current lending standards remain sound is critical.

What’s more, the RBA has said interest rates will remain low for years, which eases the pressure on household budgets, and disposable income is unusually strong after the nation went through its worst economic contraction since the Great Depression in the June quarter.

Jobs growth and the JobKeeper package have clearly done the heavy lifting.

With the interruption to immigration tapering demand for housing, a post-meeting announcement by the CFR on macroprudential curbs is even less likely.

Moving on

National Australia Bank’s CBD footprint in Melbourne and Sydney is about to fundamentally change, as the bank vacates and opens new office space tailored for a post-pandemic work environment.

New chief operating officer Les Matheson is running the project, which drew a $134m pre-tax charge for property impairments in the second half of the 2020 financial year.

The charge mainly covers plans to consolidate NAB’s office space in Melbourne, with more staff expected to adopt a mix of working from home and the office to help build a collaborative culture.

While the precise number of staff to be accommodated in each tower is still to be determined, there will be fewer desks and more space for teams.

NAB has been a constant presence on the Melbourne CBD skyline, and that’s not about to change.

However, as part of a historic overhaul of the bank’s footprint and the imminent expiry of leases at its old head office at 500 Bourke Street in Melbourne and 255 George Street in Sydney, both buildings will be vacated.

NAB will relocate to new digs at 395 Bourke Street from July, and to 2 Carrington Street in Sydney around the same time.

In the meantime, on Monday, the bank dusted down and reopened its mothballed head office at 800 Bourke Street for the first time since July last year.

Dubbed Rubik’s cube because of its colourful exterior, the building will accommodate staff until 395 Bourke Street is ready.

Once that move occurs, NAB will not reoccupy the building.

From March 12, however, 800 Bourke Street will also house the wealth business MLC, which will remain a tenant following its separation from NAB and subsequent $1.4bn purchase by IOOF.

A further office tower at 700 Bourke Street, next door to Marvel Stadium, will remain in use, and together with 395 Bourke Street will accommodate a significant proportion of the bank’s 34,000 workers.

Matheson said in an email to staff, obtained by Four Pillars, that the bank was planning for a future that would look “quite different”.

Teams, he said, would be located in “community hubs”, with staff able to book desks close to their colleagues or for collaboration with other teams.

“This will provide greater flexibility and choice to sit where needed on any given day,” the email says.

“With capacity and physical distancing restrictions, this model makes best use of available space and avoids situations where space is allocated exclusively to teams but remains empty some days.

“Teams with conflicts of interest policy and physical information barrier requirements will be accommodated separately, as will those with health and safety needs.”