The government's housing policy changes and interest rate rises have not led to more affordable homes or an increase in housing supply, but prices are tipped to continue falling until 2028, a parliamentary inquiry into Australia's four biggest banks heard on Thursday.
Westpac is lending to 30 per cent fewer housing construction projects than it did up to a year and a half ago, its chief told a parliamentary inquiry on Thursday.
The bank was careful not to pin the tailspin on the government's abolition of negative gearing and the capital gains tax discount in the federal budget in May, chalking it up mainly to cost pressures.
Labor's reforms included a carve-out letting investors negatively gear new builds — meant to incentivise construction investment — but Westpac chief executive Anthony Miller said Westpac was yet to see that take shape.
"There is some improvement in that area, but it has not come through as fast or as significant as perhaps we would like," Miller said.
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He said governments still needed to work harder to spur new building investment, boost supply and improve housing affordability.
"Providing more resource for the demand side isn't going to solve the problem," he said.
The day before Thursday's hearings, it was revealed investor home loans had cratered by a record 30.6 per cent in the year to September.
Labor hailed the crash as a win for first home-buyers because it showed speculators were retreating from the market much faster than owner-occupiers.
It also cheered an uptick in the volume of investor loans going to new builds, which jumped from 17 to 28 per cent between the March and September quarters.
Inquiry chair Ed Husic said everyone in Australia seemed to be going through tough times, except for big businesses, with banks making close to $300,000 profit from the average owner-occupier 30-year home loan, a profit that is up $40,000 since interest rates began rising earlier this year.
"A big four bank is making a profit of $234 a week off an average Australian family with an average loan," the Labor MP said.
But ANZ Group CEO Nuno Matos disputed those numbers, saying banks are "performing their role in delivering to society" and "the mortgage business is one of the least profitable businesses in banking in Australia, and it has reduced profitability year after year, at least in the last 20 years".
"All Australians are feeling the pressures of the cost of living. That means inflation is high and interest rates are high, which is not improving the quality of lives of Australians," Matos said.
He said ANZ is not taking advantage of that, but merely "doing our job".
The bank expects home prices to fall about 13.5 per cent from peak to trough and stabilise in 2028.
He warned the economy is in a "dangerous situation" as governments and companies fight for capital to build artificial intelligence, defence capability, energy projects or deal with government budget deficits at the same time as interest rates start climbing.
"They are contributing to a competition for capital. We never saw this amount of spending in our lives, in our lifetimes," he said.
Liberal MP Simon Kennedy said housing has "actually become less affordable in the last 12 months, 5.4 per cent less according to the HIA (Housing Industry Association), despite housing [prices] going down 8 per cent, and then government spending at a 40-year high is adding to this interest rate pressure, which is making housing less affordable".
Westpac said the government's policies had largely failed to boost home building.
While the bank's lending for new housing construction was higher this year than last year, Westpac says higher construction, labour, and material costs meant builders only constructed 5,300 apartments and townhouses this year, down from 8,000 last year — a 30 per cent decline.
"Higher construction costs are making affordable apartments and townhouses less attractive to build than higher-end dwellings," Miller said.
"The longer-term challenge remains supply — particularly the supply of affordable housing. Australia is simply not building enough housing to meet demand," Miller said.
He also urged the federal government to make a "break-glass decision" and fix the planning system and slow approval processes.
"It's an anchor on our growth. We will not meet our targets on housing or energy nor will we improve living standards unless we move faster," he said.
Meanwhile, mortgage arrears and hardship are rising among ANZ customers — with hardship hitting five in 1,000 customers, up about 10 per cent in six months — and arrears are expected to worsen before improving.
The bank reported loan applications fell 12 per cent over six months, with investor applications down 27 per cent and owner-occupier applications roughly flat.
— With additional reporting from the Australian Associated Press news agency.
