The banks’ role in housing and affordability
Banks made $30 billion last year while renters struggle — but is the Senate inquiry targeting the right villain?
The big four Australian banks made more than $30 billion in combined net profit last financial year, and a Greens-led Senate inquiry wants you to know about it. The framing is simple: housing is in crisis, banks are profiting, therefore banks are profiting from the crisis. It is a clean political line, and like most clean political lines, it leaves out the part that complicates the story.
Banks participated in the housing boom - they did not cause it
Banks did not cause the housing boom. They participated in it, the same way every homeowner, every investor, every local council that rezoned land upward in value, and every government that recycled stamp duty revenue instead of spending it on new housing did. When an asset class inflates by 400 per cent over three decades, as house prices have done across much of Australia, almost every institution that touches it comes out ahead. That is not a conspiracy. It is arithmetic.
The specific numbers from the inquiry are real. CBA earned $11 billion in net profit, Westpac $6.9 billion, NAB $6.759 billion, ANZ $5.9 billion. Over a standard 30-year owner-occupier mortgage, the inquiry heard, the big four banks collectively extract nearly $229,000 in profit per loan. That figure will land hard with anyone currently staring down a monthly repayment that has climbed alongside a decade of rising rates, and the discomfort it provokes is legitimate. Mortgage holders have felt the squeeze. Renters have felt it harder.
Blaming the bank for the size of the mortgage is a bit like blaming the ambulance for the length of the hospital queue. The queue is the problem, and it got long because not enough wards were built.
Profit from mortgages is not the same as profiting from scarcity
But profit from mortgages is not the same as profiting from scarcity. Banks make money by lending money. The bigger the loan, the more interest over time. House prices rising does mean bigger loans, which does mean more interest income, but the mechanism that drives prices up is not bank lending — it is the persistent failure to build enough homes to house the people who need them. Blaming the bank for the size of the mortgage is a bit like blaming the ambulance for the length of the hospital queue. The queue is the problem, and it got long because not enough wards were built.
This matters because the policy response follows the diagnosis. If banks are the villain, the answer is more scrutiny, more legislative guardrails, potentially more capital requirements or lending restrictions. Some of that scrutiny is warranted on its own terms. The Bearing has previously reported on ASIC's finding that weaknesses in how offset accounts are managed across eight major banks cost customers more than $55 million — that is a genuine consumer protection failure and worth addressing. But tighter regulatory pressure on bank lending is not a housing affordability intervention. It is, if anything, the opposite: more constrained credit conditions slow the flow of construction finance, which makes it harder and more expensive to build the new homes the market desperately needs.
The Greens' preferred levers do not add a single dwelling to the housing stock
The Greens' preferred policy levers — rent caps, taxing corporations, ending negative gearing grandfathering — each have their own logic, but none of them add a dwelling to the housing stock. Rent caps in particular have a documented history of compressing supply further by reducing the incentive to bring rental properties to market or maintain existing ones. The Bearing has covered this in some depth — if the history of rent freezes is relevant to your thinking, it is not an encouraging read.
The structural problem is supply, and supply is constrained by planning rules, by construction costs, by the length of time it takes to get a development approved, by a shortage of skilled trades, and by the political difficulty of building density in the suburbs where existing homeowners vote. Senator Pocock is correct that successive governments have failed renters. She is also correct that the system has been shaped by interests other than those of first home buyers. But identifying that the system has winners does not automatically identify the right remedy, and a remedy that increases the cost and friction of credit while leaving the supply constraint untouched does not help the people it is aimed at helping.
The inconvenient truth of the housing debate is that the path to lower rents and more affordable purchases runs through more homes, built faster, in places where people want to live. Banks financing that construction are part of the solution. Banks cast as the cause of the problem become less useful partners in fixing it.
Sources
Australian Greens — Inquiry: Banks big winners from housing crisis
The Bearing — Most Aussies aren't getting the offset account savings they think they are
The Bearing — Old Idea: freeze rents. History says it's a bad idea too.
The Bearing — What Australians really think about falling house prices
Frequently Asked Questions
Did Australian banks cause the housing crisis?
No. Banks participated in the housing boom by lending against rising asset values, but they did not drive prices up. The persistent failure to build enough homes to meet demand is the primary cause of Australia's housing affordability crisis, and that failure sits with planning systems, construction capacity, and successive governments — not lenders.
How much profit do Australian banks make from home loans?
The Greens-led Senate inquiry found that the big four banks collectively extract nearly $229,000 in profit over the life of a standard 30-year owner-occupier mortgage. CBA alone earned $11 billion in net profit last financial year, with Westpac, NAB, and ANZ earning $6.9 billion, $6.759 billion, and $5.9 billion respectively.
Would tighter bank regulation make housing more affordable?
Not directly, and it could make things worse. More constrained credit conditions raise the cost of construction finance, which reduces the feasibility of new housing developments. Since the core problem is a shortage of homes, policies that slow construction lending work against affordability rather than for it.
Do rent caps help renters afford housing?
The historical evidence says no. Rent caps reduce the incentive for landlords to bring properties to market or maintain existing ones, which compresses supply and worsens the shortage they are meant to address. They can provide short-term relief for existing tenants while making conditions harder for those seeking to enter the rental market.
What would actually fix Australia's housing affordability problem?
The evidence points to building more homes, faster, in locations where people want to live. Supply is constrained by planning rules, slow approvals, construction costs, a shortage of skilled tradespeople, and political resistance to density in established suburbs. Policy interventions that do not add dwellings to the housing stock do not resolve the underlying shortage.