‘We must be mindful of the balance between credit and income growth’: Frydenberg

Following ongoing discussion and scrutiny of the housing market and lending standards, the Treasurer has met with regulators to discuss the issues facing the housing market, amid high house prices and rising debt-to-income levels.

In a statement provided to Mortgage Business, Josh Frydenberg said: “Off the back of historically low interest rates Australia’s housing market has seen strong growth.

“It is a development replicated in many other countries. 

“A positive feature of this housing cycle compared to that of the last is a higher proportion of first home buyers and owner occupiers entering the market.

“With Australia’s economy well positioned to strongly recover as restrictions ease it is important to continually assess the appropriateness of our macroprudential settings.”

The Treasurer added that he had joined the Council of Financial Regulators last Friday (24 September) to discuss a range of issues including “the state of the housing market which is a particular focus for both APRA and the RBA”. 

He continued: “We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system.

“Carefully targeted and timely adjustments are sometimes necessary. 

“There are a range of tools available to APRA to deliver this outcome.”

The move comes amid mounting concerns surrounding the levels of debt in Australia.

The International Monetary Fund (IMF) last week expressed concerns about housing affordability and financial stability in Australia and suggested macroprudential and lending reforms may be needed.

The IMF has insisted Australia should consider shifting its policies across lending regulation and housing supply.

“Structural reforms to boost housing supply and targeted support for low-income households are needed to improve housing affordability,” the statement read.

“Macroprudential policy should be tightened and lending standards closely monitored.”

While the surge in housing prices has been largely driven by owner-occupiers taking advantage of low interest rates and government support such as HomeBuilder, the IMF pointed to an uptick in high debt-to-income (DTI) mortgages, and in investor demand (albeit increasing from low levels).

The Reserve Bank of Australia (RBA) had aired a similar warning days before, stating the ever-rising prices and housing debt levels could lead to cracks forming in the country’s financial stability.

APRA has been working with the Reserve Bank of Australia (RBA) to monitor the housing and lending markets, having discussed what tools they would be prepared to use, should they need to intervene.

It is soon set to release information setting out how it would use macroprudential policy tools, after expressing concerns around the housing and lending markets.

[Related: APRA to outline macroprudential controls]