Government Senators' Dissenting Report

1.1Recommendations made by the Chair would result in higher house prices for both first home buyers and owner occupiers, expose first home buyers to greater risks they cannot afford, and add systematic risk to the financial system, all without building a single home.

1.2As presented, the recommendations would end 25 years of bi-partisan support for the independence of the prudential regulator.

1.3Improving home ownership and affordability is a key concern for most Australians, particularly low and middle-income Australians, many of whom are renters and aspiring first home buyers.

1.4Like all broad-based demand-side proposals, including the Coalition’s Super for Housing policy, these proposals are intended to increase purchasing power, without increasing supply, and are therefore inflationary to house prices.

1.5Further, they allow those who can already buy a home to borrow more, and pay more, rather than bringing those priced out of home ownership into the market.

1.6The solution to more homeownership is supply and the Government has committed $32 billion over the decade to unlock supply in the private, social and affordable housing. Affordable rental housing is critical to supporting first home buyers to grow a healthy first home loan deposit.

1.7This includes $3.5 billion in payments to state, territory and local governments to support the delivery of new homes towards the National Housing Accord target of 1.2 million homes in the next 5 years, the $10 billion Housing Australia Future Fund for a pipeline of investments in social and affordable homes, and a $2 billion payment to states and territories through Social Housing Accelerator payments to deliver a permanent increase in the stock of social housing.

1.8The Albanese Government has also re-enlivened National Competition Policy, committing $900 million to states and territories that remove barriers to modern construction methods and other barriers to supply.

1.9Careful and calibrated demand-side policies can have a complementary role in supporting homeownership. These policies address the cost barrier for many first home buyers who typically have a smaller savings pool. An example is Labor’s Expanded Home Guarantee Scheme which has supported over 117,000 or one third of first homebuyers into homeownership since coming to government.

1.10Another is the Government’s Help to Buy Bill, which had been delayed in the Senate by the Coalition and the Greens. This shared equity scheme will support 40,000 first homebuyers with a deposit of as little as 2 per cent, with a greater incentive for those who contribute to supply efforts and build a new home.

1.11Government Senators note the Chair has publicly stated that if elected, the Coalition will repeal measures like Help to Buy. The Coalition have not detailed how such a repeal would work, leaving potentially thousands of new home buyers who will have benefitted from the scheme uncertain about their future.

1.12The serviceability buffer is an important regulatory tool set independently by APRA. The buffer requires lenders to provide loans that can weather changing economic conditions, changes to individual circumstances like income, and increases in interest rates. Importantly, it supports stability in the financial system. APRA emphasised this in their appearance before the committee.[1]

1.13Our current low rate of arrears and mortgage default and financial system stability at this point in the tightening cycle is evidence the serviceability buffer has served its purpose well.

1.14The Chair’s proposed political intervention to amend ways in which APRA applies the serviceability buffer to first home buyers is asking those who are more often in a financially insecure position to take on increased risks.

1.15Making the argument for keeping with the current serviceability buffer rate, Westpac noted that loosening standards would only increase the burden on borrowers and increase their stress.[2]

1.16Consumer groups were clear that changes to regulatory settings are not needed and in most cases are a risk. Mortgage Stress Victoria told the committee irresponsible home loans can leave homeowner borrowers in insecure housing or homelessness as well as with additional debt.[3]

1.17This inquiry explored options for lenders to hold the credit risk of first home buyers against the pool of loans of existing mortgage holders. This would mean current mortgage holders service a higher interest rate than a first home buyer. Critically, a lender would only be offering the same amount of loans as they would have before.

1.18This proposal has the effect of pitting first home buyers against existing borrowers, forcing existing borrowers to pay more in interest.

1.19Proponents of this proposal, Barrenjoey, were clear in their evidence to the inquiry that existing mortgage holders would need to pay more, confirming that is the idea of the proposal.[4]

1.20Providing evidence to the inquiry, National Australia Bank was clear the credit risks and costs would flow on to existing customers and was a complex mechanism with a number of unintended consequences.[5]

1.21The result for people who are looking to upsize is that they pay more and afford less. Having purchased an initial smaller property like a unit, they would now be selling their first property to purchase a new home to house their growing family. In this instance, this couple would be issued high interest rates on a new loan because a portion of risk of first home buyer sits against a pool of loans of existing home buyers like them.

1.22Today, the Australian Parliament sets APRA’s legislation, which APRA implements, including setting a serviceability buffer. The Chair’s proposal is that the government of the day would give a directive to APRA on how to set its buffer. This goes against 25 years of bi-partisan support for an independent prudential regulator.

1.23This political approach would risk causing APRA to prioritise questions of political stability, rather than financial systems stability.

1.24Government Senators strongly believe that financial system stability is best assured by prudential, not political, regulation.

1.25The real risk of the proposals as presented by the Chair is that consumers pay the price. They would push house prices up, undermine stability in the financial system and fail to build a single new home at a time when increasing supply must be the focus.

1.26It was clearly and repeatedly put to this inquiry that increasing the housing supply is the answer to home ownership, not asking first home buyers to take on more debt and risk.

1.27Government Senators note the evidence to this inquiry that our current lending regulations and obligations have been effective at providing credit for mortgage holders that they can afford for their current circumstances, and believe the proposals as presented by the Chair add system risk to the financial system and will increase prices with no positive effect on supply.

Senator Jess Walsh

Deputy Chair

Labor Senator for Victoria

Footnotes

[1]Mrs Therese McCarthy Hockey, Executive Board Member, Australian Prudential Regulation Authority (APRA), Proof Committee Hansard, 24 October 2024, p. 34.

[2]Mr Martin Green, National General Manager, Property Finance, Westpac, Proof Committee Hansard, 24 October 2024, p. 7.

[3]Ms Nadia Harrison, Chief Executive Officer, Mortgage Stress Victoria, Proof Committee Hansard, 24 October 2024, p. 18.

[4]Mr Mott, Barrenjoey, Proof Committee Hansard, 16 October 2024, pp. 28–29.

[5]Mr Ben Nicholls, Executive, Portfolio Management, NAB, Proof Committee Hansard, 24 October 2024, p. 13.