Trust and confidence are among the most important tenets of our society. They are central planks of social order and economic prosperity. Trust is something that permeates almost every aspect of our lives.
Think about that for just a minute with this simple example.
It’s a dark night and you’re driving along a lonely outback road, in the far distance you see two bright headlights, coming towards you and you’re travelling at the speed-limit of 100kms/hour. As you see the headlights you do not feel the need to slow-down, both you and the driver of the other car continue to head towards each other because you trust each other to stick to the rules. Trust that the other driver will do the right thing and stay to their side of the road and observe the speed limit and road-rules.
That’s exactly what happens, and you pass each-other and both continue on your journey, your trust (as expected) has been correct and respected. However, if it were not so then we all know the terrible consequences.
Of course, trust and confidence are not thankfully often topics of life and death, that’s obvious however, the Hayne Royal Commission (HRC) could be summarised in these terms as there was a failure of both trust and confidence in some very important areas of our society. Some impacts are and will be at a very personal level, and others will permeate much deeper impacting business, politics and social justice.
It’s very likely that the Commission’s findings, associated with some 76 core recommendations will be debated and referred to for many years, just like the GFC of 2008 the impacts may well-take a decade to work through our financial systems.
There have already been some high-profile consequences both personal and institutional, with undoubtedly more to come.
However, at an individual level and more directly focussed on the property market, it’s reasonable to ask why matters confronted by the commission are so important, and if indeed they are important to the property market, and in particular the residential sector.
Returning to the central themes of trust and confidence, the Commission looked at several core areas where these qualities are vital; financial services, insurance and superannuation.
All three areas impact individuals but, essentially, they do so on a daily basis, and in times of need like insurance and in the longer-term when we’re talking about superannuation.
As a result, the overwhelming need for the Commission may well have acted to suck the oxygen of confidence out of residential markets, while all the trust enjoyed by many of the related institutions more or less evaporated. This came at a time when residential markets were at their peak and any subsequent retreat was thus hastened.
When at an auction as an individual for example bids for a property, they are showing a great deal of trust and confidence in the market, in themselves and in the institutions that will support their purchase.
And just like our two fictional drivers at the start of these comments if all goes to plan, that’s good but if not, well that’s not good.
The conclusion of the HRC despite all of the pain and the adjustments yet to come, should be counted as a positive for the residential property market. While there may not be an immediate and loud ‘sigh of relief’, the 12-month long conduct of the Commission had placed a cloud over markets causing further hesitation and uncertainty.
That’s no longer the case but governments need to respond in a constructive way and there are many reasons why that response may well continue to impact markets.
A Matter of Balance
In a wider context Australia’s need for this Royal Commission can to some degree be tied to what some economists have termed a “retreat of the state,” a worldwide phenomenon that has important implications for politics, economics, national and international governance, and security.
It’s a very big question centred around whether today’s liberal democracies are still capable of delivering policies when a few highly profitable firms (think the big hi-tech players) are able to introduce their own public policies with little to no scrutiny.
Our Banks’s while impacting only local conditions have in part been judged in much the same way as to big and important for the type of scrutiny the HRC inflicted. See as institutions having too much concentration of economic power, that it now appears the banks and others at best took for granted or at worst abused.
How, then faced with the Commission’s finding, might the Federal Government and indeed individual institutions and every-day consumers respond to this fundamental challenge?
A Measured Response
There’s little doubt that the Commission’s findings will result in big changes to our financial systems however, there’s already evidence from some early surveys that consumers are not that happy with the findings.
In the Sydney Morning Herald, one survey asked if the Commission’s findings were tough enough on the banks and financial services industry, and only 26% said yes, while 62% said no.
This is an early signal that the response the HRC will be a sensitive task, and a further tightening of credit, even the prospect of a credit-crunch could well be seen as punishing consumers that has already surfaced in parts of the housing market.
And while a full-scale credit-crunch appears now to be unlikely, the free but responsible flow of credit to customers big and small, needs to be maintained in an open and transparent way.
Considering the flow of credit for the housing market, the HRC did not recommend any major changes to responsible lending requirements and this has alleviated concerns that more buyers would have found it harder to secure a housing loan, or other lines of credit.
This leads to considering the role and remuneration of mortgage brokers. Here there has already been a big negative response to the suggestion that in part would see borrowers having to pay a fee for broker’s services. Depending upon various published figures as many as 60% of loans are currently secured via brokers and restricting their role is not seen as a reasonable or fair idea.
However, the policy needs far more consideration and may well not be implemented as it could defy a decades long policy of shifting power away from the big four banks. The policy is perhaps better considered in a wider review of all fees and commissions (if any) paid across all financial services and just not concentrated in one area.
The housing market is also indirectly tied-up in the HRC response to several aspects of superannuation. It’s an area that is also very much linked into trust and confidence as super-savings are a long-term back-stop for a majority of Australians financial futures.
Limited access to super-savings to buy a home is only a minor point, what’s key is that consumers can rely upon the fairness of fees and have confidence that their super-savings are being well managed to produce long-term financial gains and results.
This feeling of security will in the longer-term feed into the stability of the housing market and wider economy.
A Cultural Resetting Cause for Confidence
The hope is that the HRC will lead to a cultural resetting of the entire Australian financial sector, if that happens it will be, despite a few hurdles yet to be cleared, a positive outcome for the wider economy and that includes the property sector.
Avoidance of any sort of tighter credit-crunch is important as a weaker property sector will impact employment, investment and productivity and could then course in a negative way through the entire economy.
Despite the HRC being a huge shockwave to the financial sector if fundamentally there is change to many key aspects of culture, management and governance that has a focus on consumers then the HRC should be a positive for the property market however, this re-setting should not simply be a matter of bank-bashing.
There’s already been a positive share market rebound but the real work is yet to come, and a determined eye will be on the Federal Government and the Opposition leading into the federal election. Consumers will look for government to act, but to do so fairly and with due consideration, so we can see trust and confidence are restored.