Westpac CEO says Australia needs more affordable homes at $500,000, with first-home buyer enquiries doubling

Australia needs more $500,000 homes because houses and apartments have become too expensive for average income earners, Westpac’s chief executive Anthony Miller says.

The availability of half-a-million-dollar homes was “really critical” to solving Australia’s housing affordability crisis, he said, because the average worker earns around $80,000 a year and the typical capital city house costs $1 million or more. Westpac typically lends borrowers five times their salary before tax.

“We need to tackle the structural, undersupply of housing and efficiently deliver more houses in the $500,000 price range,” he said on Monday.

“When you think about the cost to construct, you think about the time and cost and process for approval, all of those features contribute to being very hard to be able to build a house at that price point.

“How can we create an environment where it’s cost effective, it’s rational and it’s reasonable to built for a house for $500,000, $600,000? Let’s build more properties at the right price point to allow people to get access to the market.”

Australia’s median capital city house price climbed by 6.3 per cent during the past year to $1.091m. Housing construction has not kept up to rapid population growth, and the fact Australians have been typically living with fewer people since COVID. This has caused house price growth to vastly outpace wage increases.

Government subsidies are increasing demand too. The debut of the Government’s renamed 5% Deposit Scheme also saw Australian home values soar by 1.1 per cent in October, marking the fastest monthly growth pace since June 2023, when more than 500,000 migrants on an annual, net basis were still moving to Australia, new Cotality data has revealed.

Westpac chief financial officer Nathan Goonan said enquiries from prospective first home buyers had more than doubled since October 1, when the Federal Government revamped the old Home Guarantee Scheme so all property newcomers could get in with a 5 per cent deposit.

“The first home buyers’ guarantee scheme has certainly stimulated some interest, whether it was some pent-up demand there,” he said.

“We saw applications in the first couple of weeks when the changes were made, almost went to two-and-a-half times what they were for the first home buyers’ guarantee. Last week, it was about two times what they were. So, it’s still double.

“We’re seeing a lot of that volume. How much that actually fulfils is a bit of a wait and see. Still a small portion of the bank but it certainly stimulated some demand.”

Mr Miller argued Federal and State government plans to build 1.2 million homes over five years would do little to fix the shortage without a focus on middle and average-income workers.

“We can’t just be building more properties,” he said. “That doesn’t solve the actual challenge. How do we ensure the average Australian gets a chance to buy a property and their home of their dream?”

Westpac regards investors as a safer credit risk than owner-occupier borrowers in a hot housing market.

“I think we’re seeing a squeeze on the entire market because of the demand,” Mr Miller said. “In terms of the investor segment, yeah, it is an attractive segment from a credit risk perspective.”

All property newcomers are eligible to get a mortgage with a 5 per cent deposit, with the maximum price points in each capital city slightly below the median house prices in each capital city.

In Brisbane, house values have soared by 10.2 per cent during the past year to $1.087 million, making it Australia’s best performing capital city market.

Cotality research director Tim Lawless said a $54,000 increase in capital city property values since the Reserve Bank of Australia’s three rate cuts, in February, May and August, had more than outpaced the $51,000 increase in borrowing capacity from looser monetary policy.

“With interest rates potentially at or near the end of their cutting cycle, we aren’t likely to see a material boost to borrowing capacity from here,” he said.

Westpac on Monday announced a full-year net cash profit of $6.972 billion for the 12 months to September 30, marking a 2 per cent decline from $7.113 billion with notable items excluded.

Australia’s third biggest bank also announced it had sold the RAMS mortgage originator’s $21.4 billion loan book to Pepper Money and its American private equity majority owner KKR, and US investment group PIMCO, little more than a week after the Federal Court ordered it to pay a $20 million fine for dealing with unlicensed referrers.