Treasury sounds alarm on ‘risky’ housing market

In delivering the opening statement of the federal budget estimates hearings at Parliament House yesterday, Treasury secretary John Fraser emphasised that developments in the nation’s housing market “will remain a key risk to the outlook” for the economy.

“The Treasury and our regulatory counterparts will be paying close attention to adjustments in the market,” he said.

The secretary’s warning is his second in less than a week, and comes after his keynote speech at the Stockbrokers and Financial Advisers Association Conference in Sydney where he noted that household debt has increased more quickly than incomes in recent years.

The issue was also raised by RBA governor Philip Lowe in a speech earlier this month. APRA is now looking to gather information from banks on the debt-to-income ratios of borrowers. 

“Household debt needs to be watched and current low interest rates should not blind us to long-term debt servicing obligations,” Mr Fraser said. “Treasury and the regulators are watching the housing market closely.”

In yesterday’s speech, he also pointed out that dwelling prices have increased by 16 per cent through the year in Sydney and 15.3 per cent in Melbourne, though noting that there have been some recent indications that this growth is moderating.

“It is also important to emphasise that in other cities and regions, prices have been growing more moderately or declining for some years,” he explained.

Further, Mr Fraser elaborated that there are a number of “complex” factors that are driving the housing market across both the demand side and supply side.

“For instance, there is no doubt that low interest rates have combined with population growth along the east coast to increase demand and support greater dwelling investment.

“At the same time, insufficient land release, complex planning and zoning regulations and public aversion to urban infill have impacted the supply of housing.

“Residential construction activity was subdued in the mid- to late-2000s leading to a state of pent-up demand in the housing market.”

Meanwhile, Mr Fraser noted that activity has strengthened since 2012 with significant investment in medium-to-high density dwellings.

“As the current pipeline of dwelling construction reaches completion over the next two years it is likely that dwelling investment will ease as a share of the economy,” he explained.

He concluded that the steps taken recently by APRA have demonstrated that there is a role for “sensible and careful” measures that can address risks and underpin market stability.

“We will continue to focus on these going forward,” he said.

[Related: Housing construction posts ‘significant fall’]