By Gareth Vaughan
ASB CEO Barbara Chapman says she's not worried about a potential "boom-bust" scenario playing out in the Auckland housing market.
Speaking to interest.co.nz after ASB posted a 6% rise in annual net profit after tax to $913 million this week, Chapman said she wasn't concerned about the Auckland housing market.
"[But] I do think that at 9x income it is a stretch for people to get into the housing market in Auckland. It's no different from Melbourne and we're better off here than the people in Sydney are. That (Sydney's] at 12x income at the moment," said Chapman.
"If you look at the fundamental drivers...we're in a low interest rate environment, we've got very good employment, particularly in Auckland, and then you have to look at the impacts of migration and what that's having. So fundamentally I'm not concerned with the core drivers of the market as it stands at the moment."
Wednesday's Real Estate Institute of New Zealand figures show Auckland's Stratified Median House Price pushing ever closer to $1 million, rising 0.9% month-on-month in July to $996,550.
In terms of the Reserve Bank's plans to beef up its loan-to-value ratio (LVR) restrictions on home loans, notably through the introduction of a minimum 40% deposit for residential property investors nationwide, Chapman said it was too soon to tell what impact this would have.
"What has typically happened is some of these initiatives have cooled interest in the [housing] market for a while, and then it has come back. So it's really too early to call. [But] I imagine as these restrictions continue to increase then it must ultimately have a more sustainable cooling impact on the market, and I don't think that would be a bad thing at the moment," said Chapman.
'That's not going to happen'
The Reserve Bank's also looking at potentially introducing limits to high debt-to-income ratio lending, and/or making banks hold more capital against housing loans (a counter-cyclical capital buffer or capital overlay). Asked whether she thought such moves were necessary, and what impact they would have on ASB if introduced, Chapman said the question of whether they're necessary goes to a fundamental point of whether or not you think the housing market is going to correct sharply.
"All the economic indicators, and our economists, are saying to us that that's not going to happen. So will something like this cool the absolute increase in prices? Yes, they potentially will. So in itself it's not a bad thing. But if you're asking me whether I'm worried about a boom-bust kind of scenario, we're not," Chapman said.
"The view of our economists is by about 2019 some of the heat might be coming out of the market naturally in terms of the supply and demand factors, and then we might see a dip in prices. What they tell me in the last 20 years [is] there have been four relatively small dips in prices and then the market corrects. These sorts of scenarios going forward would not be unusual. So net-net I just think we'll take a cautious and measured approach through the market."
'We've been really, really conservative'
Chapman's counterpart at ANZ, David Hisco, recently publicly aired concerns about the heat in Auckland housing, telling interest.co.nz; ""What we believe is that clearly wages have not risen in pace with Auckland house prices. And so there comes a point when if we're not already close to it or there, where kiwis can't afford to get a loan and pay it off. This things going to come to an end somewhere, it has to because you can only borrow so much."
Asked about her take on Hisco's comments, and whether she saw any ANZ self interest in them, Chapman was coy.
"The best way for me to answer that is to look at the fundamentals inside our [ASB] book and the performance of our book in the market. We've been flat in [housing lending] marketshare over the last five years. You've heard me say, probably three years in a row, that we've been navigating quite carefully through the market cycle. So we've been quite measured. Our risk settings are very conservative. If you think about, for example, market's that have got into trouble around apartment lending in the past, ASB's very conservative around apartment lending. Less than 1% of our entire book is stand alone apartments where the customer doesn't have any other kind of lending security with us. So we've been really, really conservative," said Chapman.
"The buffers in our interest rates that we [use to] calculate the uncommitted monthly income for our customers, we add 2% onto the variable rate as a buffer, and if you end up with a fixed rate below the variable rate the buffer's obviously much higher. So if you think of all those settings that we have, I actually think ASB's well positioned in the market and we'll just carry on being conservative."
Asked where she thought Hisco was coming from, Chapman said the question was best addressed to him because she didn't have insight into ANZ's home loan book.
*The interest.co.nz chart below compares ASB's profit over the past decade to Auckland house prices.
*This article was first published in our email for paying subscribers early on Thursday morning. See here for more details and how to subscribe.
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