`Bubbly' Australia Housing Market May Lead to More Lending Curbs

  • Surging prices, record debt create heightened risk, APRA says
  • Prices ‘out of whack’ with historical norms, ASIC head says
Why Australia's Property Market Is Booming

Australia is facing a period of “heightened risk” in the housing market, the nation’s top banking regulator said, amid rising speculation further lending curbs may be imposed to cool runaway housing prices.

Australian Prudential Regulation Authority Chairman Wayne Byres said that while he refused to ever use the “B-word” -- referring to a bubble -- “if everyone isn’t careful, the risk in the system is going to rise.”

Speaking at a regulatory conference in Sydney Monday, Byres highlighted the combination of high and rapidly rising property prices in major cities, record household debt, slow wages growth and strong competitive pressures among lenders as creating an “environment of heightened risk.”

APRA’s role is to “dampen” lenders’ enthusiasm and ensure finance providers are exercising a “higher degree of caution than unusual,” he said.

Earlier, Australian Securities & Investments Commission Chairman Greg Medcraft told the conference the housing market is “bubbly” and he is “really concerned consumers don’t put themselves in above their head.”

House prices have typically been about four times average earnings over the long-term, suggesting current prices are “out of whack” with historic metrics, Medcraft said.

Demographia International Housing Affordability survey calculated median prices in Sydney are 12.2 times average earnings, and 9.5 times in Melbourne. Charts contained in a speech by central bank Assistant Governor Luci Ellis comparing property prices to average household disposable income ratios put the figure at a little under 5.

Read more: a Q&A on Australia’s booming housing market

House prices in Sydney and Melbourne continue to gain even after regulatory measures to curb lending, including setting a 10 percent limit on annual loan growth to investors and introducing tougher requirements on how banks assess loan affordability. Home prices in Sydney, Australia’s most expensive city, have more than doubled since the start of 2009.

Byres told the conference the 10 percent limit is serving its purpose, pointing to recent moves from banks to raise investor mortgage costs and eligibility criteria. He declined to discuss possible new measures.

Reserve Bank of Australia Assistant Governor Michele Bullock said last week that while the cap had addressed some of the risk, the initial impact may be waning and regulators are “prepared to do more if needed.’’

Adding to speculation that further curbs may be imposed, Treasurer Scott Morrison said in Canberra Monday that “pressures have built up again” in the housing market and he has been in discussion with regulators over the issue. It’s up to them to use “the levers they have,” Morrison said.

Read More: There's No Housing Bubble in Australia, Heads of Big Banks Say

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