Transcript of Question & Answer Session Housing and the Economy

How much do you think the housing market in Australia has sort of become a tradable commodity? We always talk about the foreign investor and the Chinese money. How much is that playing into our market?

I think it definitely contributed to the dynamics of the most recent price cycle. Clearly here in Sydney and in Melbourne. It's been hard to get a handle on how much exactly it's contributed, but it certainly did contribute to that, and the pullback in foreign demand particularly out of China over the last few years has probably played some role in the downswing as well. So I certainly think it's played a role, but I don't think it necessarily played as much a role as some have emphasised, but it certainly, it's played a bigger role than it has for a few years. Although if you think back over the course of modern Australian history, we've had large amounts of foreign demand or demand coming from offshore into the housing market with various migration flows through time. This time around, as you said, there may be more of it buying it as a store of wealth rather than as a place to live, but foreign demand of one sort or another has always played a fairly large role in the Australian housing market. Sorry down the front.

Thanks. You didn't mention housing affordability, which is obviously a key issue so I hope perhaps you could share some reflections on housing affordability, and also the impact of potential rates of declining home ownership on retirement incomes, and retirement incomes policy.

Okay, so that's what I was referring to at the end when I said that the rising house prices clearly have a distributional impact, is very much about housing affordability, and as I said in the end, that's not something we can do so much about. Some part of it is actually related to the supply response and also in terms of building affordable housingThere's interest in build-to-rent for instance at the moment, which from an investment point of view is an interesting proposition and that seems to be gaining some momentum around at the moment. Home ownership rates actually haven't changed that much over the last 30, 40 years now. They've actually remained fairly stable, so that hasn't changed all that much.

But as I said, clearly house price movements do have a large distributional effects in terms of affordability, in terms of whether your parents own a house, so there's a large intergenerational aspect to it as well. As much as retirement incomes policy, I think, the intergenerational aspect probably is at least as much an issue. But in the end, as I said, that's something we can't do so much about. It's very much more an issue around the supply side and the like. Thanks. Down the middle there.

Thank you very much for that speech. It was terrific. My question is around, I guess, the outlook for the Bank in terms of employment and infrastructure having to kind of, really kind of soak up the residential construction employment, and whether the Bank has a view? It seems to me that the outlook for stability is really predicated on the ability for the infrastructure sector to soak up that employment. And does the bank have a view on the fungibility of kind of a chippy installing kitchens in a multi complex apartment to the infrastructure sector?

So I'm not going to get right into the exact detail of whatever skill you've got, how transferable you are. But there has been a decent amount of people shift from out of the residential construction sector over the last couple of years into the infrastructure sector. And as you say, it partly depends on what your skill set is and not all of those are completely transferable. But one thing, which I talked about earlier is, so the infrastructure spend is going to stay at a high level for the foreseeable future basically. And one thing we've also been talking about, which is, the Treasurer and the State Treasurers were talking about recently, is also looking at not just the big infrastructure projects, like you can see outside here, but smaller projects, more scalable projects around the country. And that probably fits better with the sort of transferability of the skills that you were talking about as well.

I think there is still some scope there. There's probably not much more scope to start digging another tunnel in Sydney in the next little while, and wait until the existing project, the pipeline of the existing projects rolls off, and start to make sure you maintain that pipeline. And I think both state governments here have got that. Here and in Victoria particularly, have got that fairly well thought out. But that said, the other thing to point out is that, it is, I think you can see through the trough in residential construction, which is going to get, I mean, it's going to be worse before it gets better, but through to the other side, and we may find ourselves with a decently large under-supply of housing in a couple of years' time. Sorry, maybe take one more question. One there and then one back over there.

You did mention about the inventory growing in terms of the high rise, and we now know that there are a lot of apartments that are sort of empty waiting for the new family to move in. But on the contrary, there are concerns around the quality of build that has probably happened in the last five years when there was growth. What could be the worst-case scenario in terms of paralysis at that 500 to 1 million range where most families or immigrant families would be looking at home, and there is a wait period that goes on too long, which obviously hurts the inflation.

Right. It's slightly straying outside my expertise in terms of I'm not a property assessor, but what we have heard when we've talked to … I mean, there's a differentiation across quality. The quality builders are actually regarding this as an opportunity that they are able to emphasise their quality, their historical quality and they can use that as a selling point, and they are using that as a selling point. Another thing that you can look at is whether the developer has a share in the building, and it tends to be that if they have some skin in the game, they tend to care, that tends to help in terms of the overall quality of the building, and you can again, differentiate that. Yeah, as I said, it's not something, which … I mean, we hear about it a lot in our discussion with people in the sector, and I mean in the end what that means that some of the supply, which has come to market isn't going to meet the demand, which was there, which is potentially further exacerbates any potential supply demand imbalance. Down the back there.

Thanks very much for your talk. It seems to be an implication of what you're saying that you expect house prices, house price growth to exceed income growth. If that's the case, please could you comment on how macroprudential considerations have evolved over the last couple of years?

I don't think macroprudential considerations are about house prices. They're about lending standards. And the quality of lending. That is one point I sort of alluded to during the talk, is that house prices and lending aren't the same thing, they're often highly correlated, but they don't have to be same thing. And from a prudential point of view or a macroprudential point of view, it's the quality of the lending that's really the most paramount consideration. Those measures aren't, weren't aimed at house prices, they're aimed at ensuring appropriate lending standards. So that's very much the filter, I think, which you should think about it.

Maybe call it quits there. Okay. Great. Thanks very much.