APRA says it won't act on house price surge

Australia’s banking regulator appears unlikely to put the brakes on home lending as house prices rise, refuting speculation it was poised to curb the flow of credit in the property industry.

Australian Prudential Regulation Authority chair Wayne Byres told the 2021 AFR Banking Summit that while the COVID pandemic had shaken up the nation’s economy, it remained important that banks did not become too conservative in lending.

Speculation has swirled in the property sector that APRA may have to restrict the flow of finance into housing markets, as home values continue to rise and raise concerns over affordability.

Housing affordability became a worry for many experts and economists after the Australian Bureau of Statistics revealed the total value of new home loans hit a record high of $28.75 billion in January, while median house values continued on an upwards trajectory across all markets last month.

Mr Byres said the speculation had become so rampant that the debate had recently shifted from whether APRA would act, to when it would.

“Let me remind you that we have no mandate to target the level of housing prices, or act to improve housing affordability,” Mr Byers said in a speech at the summit.

“For us, housing prices are a risk factor, not a goal.”

Mr Byres said while household debt levels were “undeniably high” at current, they had declined relative to income recently.

“Serviceability of that debt is also being supported by historically low interest rates,” he said.

“On the radar, however, are signs that housing credit growth is picking up, and likely to outpace income growth for the foreseeable future.”

Data from APRA released earlier this month did not show any major signs of a return to higher risk lending, Mr Byers said, with investor lending and interest only lending below where they were 18 months ago.

“There does not seem cause for immediate alarm. Nor, though, for complacency,” he said. 

“We are obviously watching risk-taking by the banking sector closely, along with our colleagues on the Council of Financial Regulators.

“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.”