Close on the heels of Citi’s senior economist warning about Australia’s overpriced housing market, the chief executive of ANZ has voiced similar concerns.
Home prices are “very inflated,” ANZ’s CEO Shayne Elliott told Bloomberg but said the probability of an outright crash is “really low.”
Elliott made his comments with Bloomberg Television’s Stephen Engle in Beijing.
In Sydney, home prices have risen 75 per cent in the past five years, and the city has been ranked only behind Hong Kong as the world’s least affordable housing market.
Asked whether a crash is looming, Elliott said it’s “a really low probability, but it is certainly something we stress test a lot, and think about.”
Elliot’s caution is the latest in warnings about Australia’s overpriced housing market.
Citigroup Inc’s chief economist Willem Buiter recently said Australia needed to fix its “spectacular housing bubble” with tougher regulatory measures.
Last month, S&P Global Ratings downgraded the credit scores of almost all of Australia’s financial institutions, warning of a “sharp correction” in property prices.
The Big Four lenders, including ANZ, were spared the downgrade because S&P said it assumed the government would step in to provide support if needed.
Earlier this week, a research report by ANZ said housing price growth peaked earlier this year and will slow to 1.9 per cent by next year, though population increase and demand for housing will ensure growth stays positive in Sydney and Melbourne.
Elliott was also critical of the recent Budget announcement of a $6.2 billion levy on the country’s large lenders, though he said the priority now should be to work out the best way to implement the measure.
“It is regrettable, we don’t think it is good policy, we do think it will have unintended consequences. But we’ve seen very little value in bleating about it,” Elliott told Bloomberg.
Despite Elliott’s criticism, ANZ has generally taken a more conciliatory approach to the levy than some of the country’s other lenders. National Australia Bank Ltd. Chairman Ken Henry described it as “simply incoherent,” while Commonwealth Bank of Australia CEO Ian Narev said it was “policy concocted on the run”
Elliott said there was no doubt the outlook for earnings is getting “tougher.” The lender’s first half-profit missed estimates as its revenue growth flat-lined and its net interest margin fell to its lowest since the global financial crisis.
“What’s driven bank earnings over the last 20 years has been an increase in household leverage which has been afforded because of a lowering of interest rates. That’s just not going to drive the future,” Elliott said, adding that for consumers used to boom times, even slower growth can feel like a recession.