APRA says it is “giving careful thought to which tools might work best” if developments in housing prices and housing credit warrant any action.
“In recent weeks, the debate seems to have shifted from whether APRA will do something, to when we will do it,” Wayne Byres, the APRA chief, conceded in a speech at the AFR Banking Summit in Sydney yesterday.
“First, let me remind you that we have no mandate to target the level of housing prices, or act to improve housing affordability. For us, housing prices are a risk factor, not a goal,” Byres said.
“Our actions are driven by considerations of financial stability and risk taking. So, what do key metrics tell us?
“Household debt levels are undeniably high, but have declined relative to income recently. Serviceability of that debt is also being supported by historically low interest rates. On the radar, however, are signs that housing credit growth is picking up, and likely to outpace income growth for the foreseeable future.”
Byres pointed out that “at an aggregate level, lending statistics do not show major signs of a return to higher risk lending.
“The shares of investor lending and interest only lending – areas where we previously intervened – are below where they were 18 months ago, and well down on the previous cycle.
“On the other hand, the shares of high LVR lending, high DTI lending and broker-originated lending are increasing (albeit not at a particularly rapid rate, and at least some of this is simply a product of the relatively high share of first home buyers entering the market).
“So it is a nuanced picture. There does not seem cause for immediate alarm. Nor, though, for complacency.
“We are alert to signs that very low interest rates and rising housing prices create a dynamic in which households seek to take on even higher debt levels, and that banks searching for credit growth seek to accommodate that demand through greater risk taking. That could be in the form of looser lending standards, relaxing portfolio limits, or simply not adjusting to market developments.
“At an aggregate level that is a scenario that’s not evident yet, but the aggregates can hide a lot so we are digging into this more deeply, as you would expect.
“Should risks materialise we have a range of tools we could employ, ranging from interventions similar to that in 2015 and 2017, to the countercyclical capital buffer and (if appropriate) the new non-ADI lending rules.
“The exact tool(s) we choose will depend on the environment we face, and we are giving careful thought to which tools might work best in different scenarios. But it is obviously not wise to pre-commit to any course of action until we have a clearer view of the problem we are seeking to solve.”