Victoria University's Martien Lubberink on why housing dominates bank lending and why this is unlikely to change anytime soon
Why do banks love housing so much? Is this good for the overall economy? And if not what, if anything, could be done to change things?
We address these questions in the latest episode of interest.co.nz's Of Interest Podcastwith Martien Lubberink, Associate Professor at Victoria University’s School of Accounting and Commercial Law. Lubberink has previously worked for the Dutch central bank and contributed to the development of bank regulatory capital and disclosure standards both in Europe and globally.
New Zealand banks do the majority of their lending to people buying houses. ANZ NZ, the country's biggest bank, has $104 billion of housing lending, which is 71% of its total lending. It's a similar story at the other major banks. At ASB 69% of total lending is housing lending. At Westpac NZ it's 66%, at Kiwibank it's 84% and at BNZ it's 55%.
In the podcast we discuss how and why bank regulatory capital settings incentivise housing lending, how the political economy favours home owners, the potential of so-called fintech financial service providers to boost borrowing opportunities for small businesses, or SMEs, and more.
"We are very much focused on lending to residential real estate, our homes. We've got no capital gains tax, everything's geared up to supporting the home owners. And that is because we vote for that, we want that. We are not explicitly voting for SMEs, and SMEs themselves are fragmented, poorly organised. So they can not stand up against powerful politicians, [the] powerful interests of other parties. SMEs are in a way the wallflower of our economy and that's kind of detrimental because a lot of growth and great ideas will come from that sector," Lubberink says.
"The banking system in itself is not a problem, it's more the way that the lending is organised. And that's more like a political deal made between voters who want their homes. In fact these homes are subsidised because there's almost no risk attached to them. If something goes wrong owners will be bailed out or banks will be bailed out. That's the world we live in, which I think is very hard to change."
"There is a bit of a trade-off. The banking system is safe. On the other hand the big problem still is the very large exposure to a single asset class [housing]. If something goes wrong in that single asset class it goes wrong very quickly," Lubberink says.