The blunt message last week from Reserve Bank assistant governor Michele Bullock’s speech to the Urban Development Institute of Australia (WA) was that lending and development excesses have hangovers that take time to recede.

The mood in the room was that WA developers were being unfairly crippled by tighter lending standards brought about by the need to rein in east coast markets, but Ms Bullock was quite clear the central bank did not have any tools that could force banks to favour the west. The Reserve had only one tool, and that was interest rates, and it could not set different interest rates for different States, she said.

Commenting on the impact of the tax on foreign investments, she noted it was not just Australia using tax to cool property market speculation. Canada, Britain and New Zealand had also done so on concerns foreign investment was driving up prices.

“I think my general observation would be that in periods of very strong growth in property markets it might help a little bit to take the edge off but I think we feel that in terms of foreign buying, what’s had more impact than the taxes, has been Chinese Government restrictions on outflows from China,” Ms Bullock said.

She suggested there was some doubt over “how big taxes have to be” to dissuade normal foreign investment.

Under persistent questioning about WA needing special treatment, Ms Bullock said: “I have no silver bullet unfortunately.

“My hope is that now that the royal commission has finished, and APRA has finished moving its benchmarks, that banks will start to lend — this is their business.”

All the Reserve could do was talk to the banks and ask them to think very carefully whether their lending standards were too tight, or if they “could loosen up a bit”.

“Zero credit risk is not the goal here,” Ms Bullock said. “If banks are having zero credit losses they are not doing their job properly.”

She said there might be some “green shoots” in WA from a little more population growth and the post-mining boom oversupply starting to ease, “and that might hopefully see banks starting to realise that”.

From an internal financial stability point of view, Ms Bullock said at this stage of major city price declines the Reserve was confident there were no financial stability risks, despite obvious stress on some households that bought near the top.

“Broadly, the debt is held by households that can afford to service it,” she said.

“Arrears rates, while increasing a bit over the past few years, remain low.”

The main domestic risks were to household balance sheets and developers completing apartments in a cooling market. “Currently, the risks here appear to be elevated but contained,” Ms Bullock said.

“Liaison suggests that settlement failures have not increased much.”