NAB chief executive Andrew Thorburn says it is “old-fashioned” supply and demand, rather than a bubble, that is driving the surge in Australian housing prices.
Speaking to The Australian in Perth yesterday ahead of the release of the Reserve Bank’s latest financial stability review, Mr Thorburn said the housing market seemed to be driven by fundamentals.
“The issue with housing is fundamentally a supply and demand thing. You’ve got population growth and house supply probably isn’t keeping up with it,” he said. “Being an old-fashioned economist, that supply and demand means prices will go up. I think there’s a big driver underneath all that.”
The RBA yesterday flagged its deepening concerns about the property market, confirming it was in discussions with other regulators about further steps that could be taken to “reinforce sound lending practices”.
“The composition of housing and mortgage markets is becoming unbalanced,” the RBA said.
Mr Thorburn acknowledged that housing prices were always a “difficult issue”.
“Prices are rising, although price-to-income ratios seem to be stabilising a wee bit,” Mr Thorburn said.
He noted that the latest surge in house prices comes on the back of an Australian economy that continued to grow, and a strong and long record of home loan servicing by borrowers.
“Obviously the big driver is the prospects for the Australian economy,” he said.
“The Australian economy is going to grow at 3 per cent next year. Unemployment is the key thing, because when people feel they are secure in their employment they are able to service loans. Australians’ record in servicing home loans has been excellent for 20 years.”
Mr Thorburn said his time running Bank of New Zealand had offered him “a line of sight” of the impacts any similar measures could have if introduced in Australia.
New Zealand has used macroprudential tools to restrict the supply of new lending above the 80 per cent loan ratio into the market.
The growing concerns about the Australian housing market come as NAB continues to advance efforts to scale back its presence in international markets such as the US and Britain.
Scotland’s decision last week to remain part of Britain appears to have cleared the way for an eventual sale of NAB’s Clydesdale Bank
“We were relieved, I must say, about that Scottish referendum,” Mr Thorburn said.
“Our strategy, and we will talk some more about this around the end of year results on October 30, but what I can say today is we are focusing on our core franchise, which we’ve said is Australia and NZ, and supporting particularly our business clients as they grow and expand into Asia, so we’re really moving back to investing in that franchise.
“The other things … we’re describing as non-core. We have to be disciplined but focused on exiting them.”
NAB is already looking to sell off its US subsidiary Great Western Bank.
This article first appeared in The Australian.