“Yes, the whole issue of housing and property is a big issue on our agenda,” APRA chairman Wayne Byres said while being questioned by the Senate economics legislation committee earlier this week.
“There’s a lot of discussion in APRA about the risks, there’s a lot of discussion at the Council of Financial Regulators, with Treasury and the RBA and ASIC about the risks. We’ve never hidden [from] the fact that we are in an environment of heightened risk,” he said.
“Prices are high, household debt is high, interest rates are at historical lows, income growth is low [and] competitive pressure is strong in the housing market, so everyone needs to be fairly careful about how they operate.”
When asked about whether he thought there was a case for a regulatory approach that takes into account the different property markets across the country, Mr Byres emphasised that what APRA has been trying to do is “focus on lending standards”.
“Good lending standards apply whether house prices are going up, down or sideways,” he explained.
“House prices in Perth are falling at the moment, that’s what all the statistics show. High LVR lending, one could argue, is just as risky in Perth as it is in Sydney or one of the east-coast cities at present. And our focus has been good lending standards: banks taking into account conditions and borrowers’ circumstances and making sound lending decisions.”
On the subject of household debt, when grilled as to what point the ratio of debt to GDP would start to concern APRA, Mr Byres avoided providing a specific figure as requested by Senator Nick Xenophon.
“It’s one of the higher risk factors at present, but the issue is that it sort of depends on what else is happening in the system,” he explained.
“It is high, yes, and that is a concern in and of itself. It’s when you put the other things around it, including the fact that income growth is relatively low.”
Mr Byres elaborated that “it’s a very different thing” to have a high level of debt but high income growth, “because you can grow your way out of the debt”.
“We don’t have that at present, so it’s a level of debt that is of higher concern now than it might otherwise be.”
“We already think it’s high, and are responding because we think it’s one of the factors that lead to concern. It would be more comfortable if it was lower, yes. Exactly how you achieve that, that’s a very good question.
“The metric that we watch mostly, the one that we focus on, is the household debt to income level. [The alarm bells] have been going off softly, and that’s why we’ve been intervening.”