Soaring home prices in Australia’s biggest cities don’t necessarily mean the country is in the grip of a housing bubble, according to the heads of the big four banks.

Testifying at the parliamentary inquiry into banking this week, the chief executives of National Australia Bank, Westpac and Commonwealth Bank all said that while they are worried about elements of the housing market, prices aren’t over-inflated.

“I would draw the distinction between a speculative bubble in prices and prices beyond what fundamentals would justify,” Westpac’s Brian Hartzer told the parliamentary committee on Wednesday. A bubble isn’t occurring in Sydney or Melbourne, where house prices have risen the most, he said.

“There are increasing risks, but I still believe the answer is no,” National Australia Bank’s Andrew Thorburn said when asked if houses in Sydney and Melbourne are overpriced.

Commonwealth Bank, which is the nation’s largest mortgage lender, is seeing “lending at levels we are comfortable with” across Australia, Chief Executive Officer Ian Narev told the committee when he testified on Tuesday.

The bank chiefs were appearing in front of the committee, set up by the Turnbull government to ward off calls for a more far-reaching royal commission into the financial industry, for the second time within six months.

The banks have been under pressure after a series of scandals in their insurance and wealth divisions and concern they failed to pass on the full benefits of central bank interest-rate cuts to borrowers.

No calamity

ANZ Bank CEO Shayne Elliott wasn’t directly asked about his views on the housing market when he testified on Tuesday, but speaking before Christmas said that while he was cautious, he wasn’t anticipating “a calamity or a disaster.”

Capital city house prices have grown at their strongest annual rate in almost seven years after interest rate cuts and investor demand lit a fire under property values in Sydney and Melbourne, CoreLogic said last week.

The Organisation for Economic Co-operation and Development last week warned of a “rout” in Australian house prices, leading to a new economic downturn, saying both prices and household debt have reached “unprecedented highs”.

The rapid price growth, at a time of anemic wage increases, has made housing affordability a hot-button political issue. Victoria’s state government said on March 5 it will exempt first-time buyers from paying stamp duty on properties worth less than $600,000 and plans to introduce a tax on vacant residences.

Affordability problems, particularly for young people, “should be a matter of national concern,” Commonwealth Bank head Ian Narev told the committee.

Job centres

Prices in Sydney and Melbourne are rising because that is where jobs are being created and “we do not have long-term infrastructure,” said NAB chief Thorburn.

The big four — where property lending accounts for between 40 and 60 per cent of the loan book — have been tightening mortgage and development lending criteria.

The Australian Prudential Regulation Authority on Tuesday wrote to all institutions urging them to “exercise particular care to ensure that they are not unduly accepting greater risk as other lenders step back” from residential developments.

One persistent concern has been the risk of an apartment glut developing in Melbourne and Brisbane, with overseas buyers getting caught by the clampdown on lending and the enforcement of Chinese capital controls.

Westpac’s Hartzer told the committee he is receiving a weekly email on key development projects and settlements are proceeding, albeit slowly. There are some problems in lower quality developments, he said.

“What we are seeing is a number of those foreign buyers who put the money down to buy the apartments are now having trouble settling and that is creating a bit of a glut in supply, which may or may not be what the local buyers want,” Hartzer said.