ANZ chief Mike Smith has called on regulators to carefully consider imposing tighter "macro prudential" limits on property lending, saying first home buyers have always struggled to crack the market and Sydney was yet to be in a bubble.
Mr Smith said the "hunt for yield" globally amid low interest rates was "increasing the potential for asset bubbles" as investors push prices of asset classes to "crazy levels" in search of higher returns.
"In Australia, this concern has centred on the property market," he said at a business lunch in Sydney.
“I don’t think it’s quite a bubble yet but it certainly has the potential so I think it has to be watched closely and coming back to that affordability is important, particularly for a country like Australia.
“It is difficult (for regulators to deal with expensive asset prices) and this is where these macro prudential levers are being pulled right now and in many other countries and I suspect we will see more of this globally."
ANZ and other lenders have recently wound back discounts for investor mortgages, capped higher loan-to-value lending and scrapped cash incentives, after the banking regulator in December told banks to cap investor lending at 10 per cent a year.
The regulator has threatened using stricter macro prudential tools if banks continue to breach the speed limit, as several other nations have done, most recently New Zealand.
Mr Smith however said regulators must be cautious as macro prudential tools "whack everybody" and the significant issue in NZ has been the lack of supply, particularly in Auckland.
“You have to look at the whole picture because you’ve got to be careful what you do with the rest of the housing market. If you look at parts of Sydney, parts of Melbourne, they’re behaving very differently from other parts of the country, so you do have to be very careful and macro prudential controls are a very blunt instrument," Mr Smith said.
He added while there were "unique" factors pushing up prices including the shortfall in housing supply, relatively high levels of foreign investment and negative gearing, first homebuyers had always struggled to break into the property market.
"Buying your first house is always a stretch," he said, amid the ongoing fallout to comments by Treasurer Joe Hockey that first home buyers should focus on getting a good job that pays well.
"I remember when I bought my first place which was a bedsit in London. I was very proud of it but my god did I think it stretched me."
Mr Smith added Sydney was still good value compared to Hong Kong and New York.
“I was speaking to an investor the other day who was saying well house prices are getting higher in Sydney, but compared to Hong Kong and compared to New York, you’re actually still receiving quite good value internationally for the money," he said.
Westpac chief Brian Hartzer said the concerns in Australia were centred on the Sydney housing market and, to a lesser extent, Melbourne, which would be best solved by increasing supply.
"We see plenty of good reasons to understand why prices have performed as they have in NSW," he told The Australian.
"We think the banks encouraged by the regulators are being pretty conservative about lending into that property market and we're encouraging customers to be responsible and mindful of what's affordable from a debt point of view.
"The best way over time to take the heat out of the market is to increase supply, particularly in NSW where there's been a deficit of housing for quite a whole now."
This article first appeared in The Australian Business Review