If there is one person that knows the severity of the Australian housing bubble and the repercussions for our banking system, it is ex Commonwealth Bank CEO David Murray. Murray more recently headed up the the government’s Financial System Inquiry.
In an interview broadcast on Sky News earlier this month, Murray said the Australian economy was “vulnerable because there is a bubble in the housing market”
But not just any bubble.
“Many of the signs are the same as the Dutch Tulips, [..] there are peoples behavior, peoples defensiveness about any correction in that market – all those signs are there.”
The 1637 Dutch Tulip bubble was one of the greatest bubbles in history.
“But when those risks are there, something needs to be done about it in a regulatory sense, and the Reserve Bank and APRA need to stay on it,” he recommended.
He is not alone.
More needs to be done
In a rare move, IMF deputy managing director Tao Zhang visited Australia earlier this month to speak with regulators on the risk posed to Australia’s economy. Mr Zhang told the Australian Financial Review, “both sides agreed that further measures were needed to strengthen resilience to housing market shocks”.
“We’re talking about prudential policies needing to be intensified, with targeted macro-prudential measures and banks being encouraged to robustly increase their capital position into unquestionably strong territory,” he added.
No recommendations from Coalition inquiry on housing affordability
But, in an embarrassment to the government, a two year inquiry into housing affordability by the Coalition has failed to make even a single recommendation. The report, released on Friday has been, and quite rightly, branded a waste of time and money by commentators.
But reading between the lines, it would now appear the Government considers the housing bubble so big and top heavy, they are unable to make any changes, without triggering a devastating correction and creating considerable political carnage to their parties brand.
Best to leave that to the regulators. After all, APRA never saw the collapse of HIH Insurance coming – the largest corporate failure in Australia’s history.
» Switzer Daily – David Murray Interview – Switzer, 1st December 2016.
» “All the signs of a bubble are there,” says ex-CBA CEO – Australian Broker, 12th December 2016.
» Housing affordability: Inquiry that made no recommendations a ‘waste of money’, Labor says – The ABC, 16th December 2016.
» ‘It’s laughable’: Government slammed for housing affordability probe that proposes no changes – The Sydney Morning Herald, 16th December 2016.