<p>One of North Sydney's best-known commercial buildings could become hundreds of new homes, with insurance giant Zurich Australia lodging a State Significant Development Application (SSDA) to transform 5 Blue Street into a mixed-use residential development above North Sydney Station.</p>

<p>Rather than demolishing the existing building and starting again, Zurich is proposing an adaptive reuse project that would convert the landmark office building into a 15-level residential development delivering 62 apartments, 86 affordable co-living dwellings, activated retail and significant upgrades to the Blue Street Plaza.</p>

<p>The proposal reflects a growing trend of commercial property owners repositioning ageing office assets into residential housing as Sydney grapples with housing supply shortages and changing workplace demand.</p>

<p><img alt="Zurich" data-entity-type="file" data-entity-uuid="0bba7d12-06dc-4375-aad7-238c94b21ac5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.42.05%E2%80%AFAM.png?VersionId=NJl5oLAEBDGuPmY3RnyliKODjMc8lvRh" /></p>

<p>Located directly above North Sydney Metro and train station, the 3,051 sqm site occupies one of the most strategically positioned parcels of land on Sydney's Lower North Shore.</p>

<p>Designed by fjcstudio, the proposal seeks to retain and adapt much of the existing structure while creating a contemporary residential address that better connects with the public domain surrounding North Sydney Station.</p>

<p>The application proposes two basement levels, ground floor retail, affordable co-living accommodation across the podium levels, and apartments above, while preserving and enhancing the publicly accessible Blue Street Plaza.</p>

<p>Rather than pursuing maximum apartment numbers, Zurich has opted for a housing mix heavily weighted towards larger owner-occupier residences.</p>

<p>The proposal includes 62 build-to-sell apartments comprising 12 one-bedroom, 19 two-bedroom, 29 three-bedroom apartments and two premium penthouses. It also incorporates 86 affordable co-living dwellings, which would be managed in perpetuity by a Community Housing Provider.</p>

<p>That balance between traditional apartments and affordable housing reflects the NSW Government's push to increase housing diversity around major transport infrastructure.</p>

<p>The proposal has been lodged concurrently with a rezoning application, with Zurich arguing the site is ideally positioned to support additional housing given its immediate proximity to public transport, employment and services.</p>

<p>"The proposal aims to respond to the housing challenges facing Sydney through the delivery of diverse housing types in a highly accessible location," the design report by fjcstudio states. It also seeks to improve pedestrian amenity through upgrades to Blue Street Plaza while creating a high-performing residential building that responds to the surrounding context.</p>

<p><img alt="Zurich" data-entity-type="file" data-entity-uuid="36082e15-c636-4481-bb68-5a5f6443fe39" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.41.36%E2%80%AFAM.png?VersionId=5P6VD.fvmqjQfIG3TWWMRXxQWiQBjeFB" /></p>

<p>Rather than replacing the commercial building, fjcstudio has developed a design that works with the existing structural framework above the rail corridor, an approach that significantly reduces demolition while allowing the site to be repositioned as a mixed-use residential precinct.</p>

<p>The existing structural constraints have informed much of the building's design, including its relationship with Blue Street and surrounding public spaces.</p>

<p>The building has been designed as a slender tower rising above a clearly defined podium, with vertically expressed façades intended to reduce the perceived bulk while reinforcing North Sydney's emerging skyline.</p>

<p>According to fjcstudio, the architectural language responds directly to the surrounding commercial towers while maintaining a finer grain expression more closely aligned with the neighbouring Lavender Bay streetscape.</p>

<p>The tower incorporates articulated façade elements, landscaped podium edges and recessed upper levels to soften its appearance and improve pedestrian amenity below.</p>

<p>A significant component of the proposal is the revitalisation of Blue Street Plaza.</p>

<p>The existing public space has long served as one of the primary pedestrian connections between North Sydney Station, Greenwood Plaza and Blue Street, yet its role is expected to become even more important following the opening of Sydney Metro.</p>

<p>Zurich's proposal seeks to strengthen that role by improving landscaping, introducing new retail frontages, enhancing pedestrian permeability and creating more active edges throughout the day and evening.</p>

<p>Ground floor retail would wrap the plaza, while separate residential and co-living entries have been designed to improve wayfinding without reducing street activation.</p>

<p>Landscape design has been integrated throughout the podium and public realm, softening what is currently one of the most heavily urbanised parts of North Sydney.</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>fjcstudio has carefully oriented apartments towards Sydney Harbour and the CBD while using privacy blades and articulated façades to minimise overlooking between neighbouring buildings.</p>

<p>Large framed openings along the western elevation maximise harbour outlooks, while the eastern apartments have been angled towards the south-east to improve privacy from neighbouring development.</p>

<p>The project forms part of the continuing transformation of North Sydney from a predominantly commercial CBD into a genuine mixed-use city centre.</p>

<p>Since the completion of Victoria Cross Metro Station, developers have increasingly shifted their attention towards residential projects capable of leveraging the area's unparalleled transport connectivity.</p>

<p>&nbsp;</p>

<p>FiveX recently lodged plans for a 61-storey, 490-apartment tower that would become one of the tallest residential buildings in North Sydney if approved.</p>

<p>Aqualand continues to expand its Lower North Shore presence following the completion of AURA on Walker Street and its recent St Leonards and Roseville proposals.</p>

<p>Developers are also progressing projects throughout Walker Street, Miller Street and the Victoria Cross precinct as demand for well-located owner-occupier apartments continues to strengthen.</p>


Joel Robinson

First look: Zurich targets North Sydney office conversion with 148-unit proposal above Metro station

<p>Busy developer Aqualand Prestige has formally taken the next step in its expansion across Sydney's Lower North Shore, lodging a State Significant Development Application (SSDA) for its long-held Archer Street site in Chatswood.</p>

<p>The application covers <a href="https://www.apartments.com.au/new-apartments/51-55-archer-street-chatswood-nsw-2067">51-55 Archer Street</a>, a 1,767 sqm amalgamated site on the eastern edge of the Chatswood CBD, where the developer is seeking approval for a 45-level mixed-use tower delivering 114 apartments, including a significant affordable housing component, alongside retail, commercial space and six basement levels of parking.</p>

<p>The SSDA marks the latest milestone for a project Aqualand has been quietly progressing over the past two years. The developer first secured the site for its Aqualand Prestige platform before undertaking an alternative design excellence process with PTW Architects, ultimately avoiding a formal design competition through the Housing Delivery Authority pathway.</p>

<p>The proposal has evolved considerably from Aqualand's original concept. The revised scheme has been designed around larger owner-occupier product, with an unusually high proportion of three and four-bedroom apartments, targeting the more affluent buyer profile, and downsizer, emerging across the North Shore.</p>

<p><img alt="Archer St" data-entity-type="file" data-entity-uuid="0171204c-5811-41b5-9b09-2335d1b7c3d0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%208.52.48%E2%80%AFAM.png?VersionId=6YTuxfq.puZo7k2wbfgemcO5K3QfXYGQ" /></p>

<p>The 114-apartment mix comprises six studios, 27 one-bedroom apartments, 18 two-bedroom apartments, 50 three-bedroom residences and 13 four-bedroom homes. A quarter of the building will be dedicated to affordable housing, well above the mandated 15 per cent&nbsp;</p>

<p>PTW has structured the building vertically, with affordable housing across levels one to six, premium apartments through levels seven to 31, duplex skyhomes on klevels 32 to 43, a penthouse on level 44, and a rooftop plant level above. Six basement levels will provide resident parking and servicing.</p>

<p>The tower is proposed to reach approximately 154 metres, placing it among a growing collection of residential high-rises transforming Chatswood's skyline.</p>

<p>Rather than competing purely on height, PTW says the design has been driven by creating a slimmer tower capable of delivering significantly larger apartments.</p>

<p>"The primary objective of this project was to create a distinctive building that stands out from the recently approved or built structures in the Chatswood area," the design report states, noting the structural efficiency allows greater investment into apartment quality and resident amenity.</p>

<p>Residents would have access to more than 450 sqm of communal open space including landscaped gardens, swimming pool, rooftop entertaining areas, fitness spaces, community gardens, children's play areas and barbecue facilities.</p>

<p>A major focus of the design has been the public domain.</p>

<p>The ground plane has been opened up through landscaped terraces inspired by Willoughby's sandstone ridges, with native planting, public seating, artwork, retail activation and a series of gathering spaces intended to soften what has traditionally been a hard commercial streetscape.</p>

<p>The landscape strategy references Blue Gum forests once common throughout the area, while incorporating Indigenous storytelling, public art and lighting installations to strengthen the connection to Country.</p>

<p data-end="239" data-start="66">Chatswood has been one of Sydney's busiest apartment markets over the past 12 months, with a steady pipeline of both new project launches and fresh development applications.</p>

<p data-end="442" data-start="241">Hyecorp recently launched Celine, a 122-apartment development just along Archer Street, while Changfa and Huirong Group are progressing The Anderson, an 84-apartment project on Anderson Street.</p>

<p data-end="661" data-start="444">Develotek recently secured approval for a 101-apartment tower on Pacific Highway, while Tian An LFD received the green light for Hammond Greens, its apartment development on the edge of the Chatswood Bowling Club.</p>

<p data-end="909" data-start="663">Commercial property developer FiveX is also making its move into the residential market. Last month it lodged plans for a 61-storey tower with 490 apartments, which, if approved, would become one of the tallest residential buildings in Chatswood.</p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-fivex-targets-chatswood-skyline-with-61-storey-tower-after-north-sydney-plans">First look: FiveX targets Chatswood skyline with 61-storey tower after North Sydney plans</a></em></p>

<p data-end="1339" data-start="1019">Aqualand is also expanding its development pipeline following the launch of its luxury residential brand, Aqualand Prestige. The developer has delivered a string of high-end apartment projects across Sydney's affluent suburbs over the past decade, most recently AURA by Aqualand on Walker Street in North Sydney.</p>

<p data-end="1339" data-start="1019">[smartcode_project:default project_id=30959 project_image_fid=292863]</p>

<p data-end="1398" data-start="1341">It has since quietly assembled its next wave of projects.</p>

<p data-end="1805" data-start="1400">Earlier this year Aqualand launched Boronia in Roseville, a boutique 111-apartment development on Larkin Street. The project is one of the first significant apartment developments to launch in the suburb ahead of what is expected to become one of Sydney's most active new housing precincts under the NSW Government's Low and Mid-Rise Housing reforms, which allow greater density around train stations.</p>

<p data-end="1805" data-start="1400">[smartcode_project:default project_id=152095 project_image_fid=373685]</p>

<p data-end="1991" data-start="1807">The developer has also lodged plans for a two-tower, 413-apartment development on Herbert Street in nearby St Leonards, further strengthening its presence across the Lower North Shore.</p>

<p data-end="2303" data-is-last-node="" data-is-only-node="" data-start="1993">Beyond that, Aqualand remains behind the final stage of Barangaroo, where plans will deliver a five-hectare mixed-use precinct comprising new homes, retail, hospitality and community facilities, alongside a new Metro entrance and more than two hectares of public open space, completing the Barangaroo precinct.</p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/central-barangaroo-development-takes-big-step-with-concept-proposal-approval">Central Barangaroo development takes big step with concept proposal approval</a></em></p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-aqualand-joins-st-leonards-apartment-party">First look: Aqualand joins St Leonards apartment party</a></em><br />
&nbsp;</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

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<p>&nbsp;</p>


First look: Aqualand pushes ahead with Chatswood apartment tower as SSDA lodged for Archer Street

<p data-end="492" data-start="327">Mass timber is becoming an increasingly popular construction material in apartment developments, but Adelaide developer <a href="https://www.apartments.com.au/developers/otello">Otello</a> is taking the approach a step further.</p>

<p data-end="843" data-start="497">At its new <a href="https://www.apartments.com.au/new-apartments/flowe-bowden-18-gibson-street-bowden-sa-5007">Flowe Bowden</a> development, the exposed cross-laminated timber (CLT) structure isn't just about reducing the building's environmental footprint. It also forms the foundation of a broader wellness strategy, influencing everything from indoor air quality and natural materials to the way residents move through and experience the building.</p>

<p data-end="1109" data-start="848">The 115-apartment mixed-use development, designed by Melbourne-based architecture practice Fieldwork, will occupy a prominent island site opposite Bowden Village Reserve, combining one, two and three-bedroom apartments with retail and a dedicated wellness destination.</p>

<p data-end="1109" data-start="848">[smartcode_project:default project_id=152022 project_image_fid=375528]</p>

<p>Wellness isn't confined to a gym or shared resident facility at Flowe. Instead, Fieldwork embedded the concept into the building itself.</p>

<p>The development has been split into two residential wings connected by a naturally ventilated central breezeway, replacing traditional enclosed corridors with open-air walkways that improve natural light, encourage cross ventilation and create more opportunities for neighbourly interaction.</p>

<p>"Rather than treating wellness as something that only happens on the ground floor, our response integrates it throughout the building, which led us to ask what it really means to design a healthy building," Fieldwork Director Quino Holland said.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375531]</p>

<p>The building's architecture also reflects Bowden's industrial heritage. The lower podium references the area's historic brick and sandstone buildings, while the upper levels transition to exposed CLT, allowing the timber structure to become a defining feature throughout the apartments and shared spaces.</p>

<p>The use of mass timber sits alongside a range of sustainability initiatives, including a fully electric, gas-free design, rooftop solar and a targeted 5 Star Green Star rating.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375524]</p>

<p>Inside the residences, the focus remains on natural, durable materials. Blackbutt engineered timber flooring, exposed CLT ceilings, porcelain surfaces and warm timber joinery create a calming interior palette, while low-VOC finishes and responsibly sourced materials have been selected to improve indoor air quality.</p>

<p>Kitchens have been designed as the centrepiece of each apartment, featuring porcelain island benchtops, timber-look cabinetry and brushed steel tapware, with layouts that maximise natural light and ventilation.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375530]</p>

<p>The more traditional interpretation of wellness comes in the form of Level Eleven, a two-storey wellness club spanning the ground floor, mezzanine and first floor.</p>

<p>The facility will include a gym, yoga and reformer Pilates studios, Finnish and infrared saunas, magnesium hot and cold plunge pools, and dedicated recovery spaces. Unlike many residential wellness facilities, Level Eleven will also operate commercially, allowing the broader Bowden community to access the venue while giving residents exclusive membership benefits.</p>

<p>The ground floor has also been designed around everyday living. A café overlooking Bowden Village Reserve will activate the street frontage, while a bike workshop with tool storage, co-working space and dog wash has been incorporated to support daily routines and encourage interaction between residents.</p>

<p>"Flowe brings together my two biggest passions, creating places and creating healthier lives," Otello founder Daniel Harris said.</p>

<p>"We wanted to create something Adelaide hasn't seen before, a genuinely healthy building, where the way you live is lifted without even trying."</p>

<p>Flowe is positioned directly opposite Bowden Village Reserve and within walking distance of Bowden Railway Station and the Adelaide Entertainment Centre, placing future residents just minutes from the Adelaide CBD while remaining connected to one of the city's most established urban renewal precincts.</p>

<p>[smartcode_project_cta:default project_id=152022]</p>


Otello launches wellness-focused Flowe Bowden with Adelaide-first mass timber apartment design

<p>Not all apartment amenities are immediately visible.</p>

<p>Swimming pools, gyms, rooftop terraces and residents' lounges have long featured on buyers' wishlists, but as the way Australians live has changed, so too have the features that make apartment living more convenient.</p>

<p>Increasingly, buyers are placing value on the practical aspects of day-to-day life. Fast internet, EV charging, secure bike storage, flexible workspaces and parcel management are becoming just as relevant as lifestyle amenities, reflecting changing habits and expectations.</p>

<p>Online shopping has been one of the biggest drivers of that shift.</p>

<p>Australians spent a record $82.6 billion shopping online in 2025, with almost one in every four retail dollars now spent digitally, making parcel deliveries a routine part of everyday life rather than an occasional convenience.</p>

<p>For apartment residents, however, receiving those deliveries isn't always straightforward.</p>

<p>Without someone home to accept a parcel, deliveries can be redirected to a nearby Post Office, left in building foyers or common areas, or require building management to temporarily store packages. As apartment living continues to grow across Australia's cities, parcel management has become an increasingly important consideration for both residents and developers.</p>

<p>Australia Post's Parcel Locker network is one response to that shift.</p>

<p><iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/KPZ9j5FRdsQ?si=Qztc1dNP3ZvEIUhb" title="YouTube video player" width="560"></iframe></p>

<p>Rather than relying on home delivery, eligible parcels can be directed to a nominated Parcel Locker, where they're securely stored until collected. Once a parcel arrives, residents receive a notification through the AusPost app or SMS and can retrieve it using a one-time code or QR code at a time that suits them.</p>

<p>The network has expanded to more than 1,500 locations nationwide, with Parcel Lockers positioned at Post Offices, shopping centres, supermarkets, transport hubs and, increasingly, within or alongside residential developments.</p>

<p>That growing presence reflects a broader change in how apartment buildings are being planned.</p>

<p>Developers are increasingly considering the operational side of apartment living alongside traditional lifestyle amenities. Just as secure mailrooms, bicycle storage and EV charging have become more common inclusions, parcel management is emerging as another feature that supports everyday convenience.</p>

<p>It also helps preserve the arrival experience within a building. Carefully designed lobbies and communal spaces can quickly become cluttered when deliveries accumulate, while secure parcel solutions reduce the likelihood of missed deliveries or parcels being left unattended.</p>

<p>For buyers comparing apartments, these everyday details are becoming part of the decision-making process.</p>

<p>Location, floorplans and finishes remain fundamental, but the features that simplify daily life are carrying greater weight than they once did. As online shopping continues to shape consumer behaviour, secure parcel delivery is increasingly becoming another amenity worth looking for.</p>


Parcel delivery is joining the apartment amenity checklist

<p data-end="471" data-start="164">Inca Property Group has lodged a State Significant Development Application (SSDA) for Dawn, a 53-apartment oceanfront development overlooking Mona Vale Beach.</p>

<p data-end="777" data-start="473">The proposal, at 35-39 Darley Street East, would replace an existing 18-apartment strata building with a new owner-occupier-focused development comprising 53 two and three-bedroom apartments, including nine affordable built-to-rent residences delivered under the State's infill affordable housing scheme.</p>

<p data-end="976" data-start="779">Positioned on a 2,679 sqm elevated site around 280 metres from Mona Vale Beach, the development has been designed to maximise panoramic ocean views while responding to the site's sloping topography.</p>

<p data-end="1119" data-start="978"><a href="https://www.apartments.com.au/developers/inca-property-group">Inca Property Group</a> Managing Director Josh Thompson said the State Significant pathway provided greater certainty for projects of this scale.</p>

<p data-end="1399" data-start="1121">"This State Significant pathway gives the team real certainty to progress <a href="https://www.apartments.com.au/new-apartments/dawn-35-39-darley-street-east-mona-vale-nsw-2103">Dawn</a> through to completion," Thompson said.</p>

<p data-end="1399" data-start="1121">"It allows us to acquire a one-off site, design it carefully and deliver the right offering for the suburb, assessed by the NSW Government's planning department."</p>

<p data-end="1605" data-start="1401">The project is one of the first developments in the area to be assessed under the NSW Government's Low and Mid-Rise Housing policy, with the site sitting on the edge of the policy's designated inner area.</p>

<p data-end="1852" data-start="1607">The proposal includes three basement levels providing 124 car spaces, alongside a range of resident amenities including a swimming pool, gym, sauna, wellness facilities and private plunge pools for selected ground-floor and penthouse apartments.</p>

<p data-end="1852" data-start="1607"><img alt="Dawn" data-entity-type="file" data-entity-uuid="fc1a1daf-0ce4-4f12-9076-b1fa553c7a91" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-21%20at%208.42.11%E2%80%AFAM.png?VersionId=4GZ9h.gpNkTljbxyAET8Jfhv51XUamDm" /></p>

<p data-end="2031" data-start="1854">Thompson said Dawn had been designed specifically for owner-occupiers and downsizers, a buyer profile that has driven demand across Inca's recent Upper North Shore developments.</p>

<p data-end="2299" data-start="2033">"The majority of buyers in our recent North Shore projects have been downsizers, and we are learning exactly what this market is looking for. Beyond the location itself, we have included resort-style amenities to deliver a genuine lifestyle offering," Thompson said.</p>

<p data-end="2588" data-start="2301">Located within walking distance of Mona Vale Beach, the town centre, Mona Vale Golf Club and the Royal Motor Yacht Club, Dawn represents Inca's first Northern Beaches project following the sell-out of Tara on Park in Waitara and Ellis Residences, currently under construction in St Ives.</p>

<p data-end="4143" data-start="3991">Construction will be undertaken by Inca's in-house construction arm, GOP Constructions.</p>

<p data-end="593" data-start="417">Dawn is the latest major apartment proposal for Mona Vale, with the suburb emerging as one of the key beneficiaries of the NSW Government's new Low and Mid-Rise Housing policy.</p>

<p data-end="789" data-start="598">New developer One Living, led by industry veteran Joseph Scuderi, recently secured a site on Mona Vale Road, on the border of Mona Vale and Pymble, where it is planning around 140 apartments.</p>

<p data-end="1053" data-start="794">IPM is also planning its third project in Mona Vale, significantly increasing the scale of its previous developments with an 82-apartment proposal at <a href="https://www.apartments.com.au/new-apartments/159-167-darley-street-west-mona-vale-nsw-2103">159-167 Darley Street West</a>, opposite Bayview Golf Course and less than 800 metres from Mona Vale town centre.</p>

<p data-end="4143" data-start="3991"><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/one-living-enters-sydneys-new-apartment-market-with-northern-beaches-site-acquisition">One Living enters Sydney's new apartment market with Northern Beaches site acquisition</a></em></p>

<p data-end="4143" data-start="3991"><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-ipm-plans-third-mona-vale-project">First look: IPM plans third Mona Vale project</a></em></p>


First look: Inca eyes Mona Vale with State Significant DA for Dawn apartments

Household Debt

<html><body>
<div>The latest AMP.NATSEM Household Debt report showed that the average household debt in Australia has increased to a new high of $245,000, continuing a prolonged run-up which has seen the average debt per household increase by a factor four since 1988, up from $60,000.</div>
<div> </div>
<div>While the bulk of the rise in mortgage debt has been driven by 30 to 50 year olds, the over 65s cohort also accounts for a fair proportion of the increase in household debt, with more Australians than ever before taking liabilities into retirement.</div>
<div> </div>
<div>Despite this, the latest Australian National Accounts implied that interest serviceability has continued to become easier.</div>
<div> </div>
<div>There are a thousand possible ways to measure this, nine of which is satisfactory: the blue points on the chart below denote interest paid on dwellings as a percentage of total employee compensation minus income tax, while the red points show total interest paid inclusive of consumer debt (excluding unincorporated enterprises) as a percentage of gross household income.</div>
<div> </div>
<div><a href="/images/2015/12/14/Interest.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/12/14/Interest.jpg" alt=""></div>
<div> </div>
<div>
<div>You could spend forever debating what should or should not be included in household income (imputed interest on dwellings, benefits receivable etc.) or backed out of gross household income (e.g. other taxes, transfers, insurance premiums etc.) but the results tend to be broadly similar. </div>
<div> </div>
<div>Of course the results generally appear to be "too low" due to the significant number of debt free households. The important thing to note is the trend, which shows that while the mining boom was in full swing the aggregate mortgage interest repayment burden was tending towards excruciating levels by September 2008 (when the official cash rate was still as high as 7 per cent). but since that time serviceability has become relatively speaking very easy.</div>
<div> </div>
<div><strong><span style="text-decoration: underline;">Buffers at record highs</span></strong></div>
<div> </div>
<div>The Reserve Bank of Australia (RBA) has noted in its Financial Stability Review that indicators of household financial stress are presently low, with households pushing ahead on repayments to the extent that aggregate mortgage buffers - as measured by balances in offset and redraw facilities - remain at around 16 per cent of outstanding loan balances, or the equivalent of well over two years of scheduled repayments at current interest rates. </div>
<div> </div>
<div><a href="/images/2015/12/14/Buffers.gif" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/12/14/Buffers.gif" alt=""></div>
<div> </div>
<div>
<div>Loan arrears and mortage delinquencies data are also tracking at historically low levels, with favourable delinquency developments having cascaded lower since the 2008 book year. </div>
<div> </div>
<div>A crude comparison the aggregate interest paid to the total stock of outstanding housing credit implies that the average mortgage rate is well under 5 per cent, suggesting in turn that Australians have taken advantage of the very generous fixed rates available through 2015.</div>
<br><div class="separator"> </div>
<strong><span style="text-decoration: underline;">The outlook</span></strong><br><br><div>The first chart above shows the sensitivity of household finances, and especially mortgage repayments, to the unpredictable changes in interest rates. Mortgage repayments are on average clearly very affordable now, but may not be so if interest rates rise sharply.</div>
<div> </div>
<div>The AMP.NATSEM report found that the highest typical debt repayment burdens are to be found in the outer suburbs of our capital cities.</div>
<div> </div>
<div>If interest rates were to rise by 2.5 percentage points - essentially the equivalent of ten interest rate hikes - then the most indebted households could see mortgage repayments rise from 42 per cent of household income to a stress-inducing 58 per cent, while perhaps unsurprisingly the most indebted low income households would be the hardest hit of all.</div>
<div> </div>
<div>An increase in interest rates of 2.5 percentage points would also see repayments for the typical first homebuyer rising from 21 per cent to 30 per cent of household income, or a shade over an extra $8,000 per year.</div>
<div> </div>
<div>There are few indications that the official cash rate is set to move materially higher any time soon, although shifts in capital requirements and funding costs may be another matter. </div>
<div> </div>
<div><strong><span style="text-decoration: underline;">Fragile markets</span></strong></div>
<div> </div>
<div>Unemployment rates have generally been trending down since January 2015, although unemployment rates in Western Australia and the Australian Capital Territory are in an uptrend, and the housing market in Darwin looks exceptionally fragile.</div>
<div> </div>
<div><a href="/images/2015/12/14/UERATE.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/12/14/UERATE.jpg" alt=""></div>
<div> </div>
<div>
<div>Although household financial stress is currently low, it seems likely that there will be some vulnerable housing markets in 2016, which may include;</div>
<div> </div>
<div>-resources regions and markets, with the terms of trade crunch likely to result in multiple mass lay-offs to add to the winding down of capital investment;</div>
<div> </div>
<div>-suburbs and sub-regions which are experiencing extensive over-building of apartments. particularly inner city high-rise stock, and those areas with already elevated and rising vacancy rates; </div>
<div> </div>
<div>-off-the-plan developments which will be adversely impacted by APRA's tougher deposit measures; and</div>
<div> </div>
<div>-outer suburban fringe locations in Sydney which saw a massive spike in investor activity and rapid price growth in 2015.</div>
<div> </div>
<div>I'd include a generic entry here for "mining towns", but many have been so utterly smashed already, leading to investor defaults and bankruptcies, since not only were prices unsustainable, so too were rents, and even tenancies. </div>
<div> </div>
<div><strong><span style="text-decoration: underline;">Auctions</span></strong></div>
<div> </div>
<div>Sydney's preliminary auction clearance rate rebounded a bit to 55.2 per cent this week, with outer suburban markets looking particularly dormant, The strongest auction market was a resurgent inner west, with a strong preliminary auction clearance rate of 74.6 per cent (<em>CoreLogic-RP Data</em>).</div>
<div> </div>
<div>This month's Labour Force data showed that New South Wales economy has generated a seasonally adjusted +176,000 jobs over the past year, for an outrageous employment growth rate of +4.9 per cent (trend +160,000 jobs, or +4.4 per cent). The Detailed Labour Force figures, which provide more colour by city, region and industry will be released on Thursday. So stay tuned for that and more this week. </div>
<div> </div>
<div>
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
</div>
</div>
</div>
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Record household debt of $245,000: Pete Wargent

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<p>Each quarter the Reserve Bank (RBA) publishes household finances data which look at the ratio of household debts and assets to disposable income. The latest data shows households are becoming more indebted at the same time as the value of their assets are increasing.</p>
<p>According to the RBA, the ratio of household debt to disposable income was recorded at 193.7% at the end of June 2017.  The ratio sits at a record high having increased by 2.0% over the quarter and by 3.9% over the year.  Unsurprisingly, most of this debt is housing related; the ratio of housing debt to disposable income is recorded at 136.4% having increased by 1.4% over the quarter and 3.9% over the year.  </p>
<p>The first chart highlights how much household and housing debt has increased over time relative to disposable incomes.  It is also noticeable that since the financial crisis the rate of escalation has slowed.  Further data from the RBA reveals that of the 136.4% ratio of housing debt to disposable income, 103.2% is held by owner occupiers with the remaining 33.2% held by investors.</p>
<p><img src="https://www.corelogic.com.au/sites/default/files/styles/article_image_570w_/public/2017-10/2017-10-09-ppimage1.png" alt="2017-10-09--ratioofhouseholdandhousingdebttodisposableincome" width="570" height="272"></p>
<p>The second chart details the ratio of household and housing assets to disposable income.  At the end of June 2017 the ratio of household assets to disposable income was recorded at 935.6% and the ratio of housing assets to disposable income was 516.5%, both of which were record highs.  Over the past year household assets and housing assets have increased by 6.6% and 7.8% respectively, well in excess of the increase in household and housing debt. </p>
<p><img src="https://www.corelogic.com.au/sites/default/files/styles/article_image_570w_/public/2017-10/2017-10-09-ppimage2.png" alt="2017-10-09--ratioofhouseholdnadhousingassesttodisposableincome" width="570" height="281"></p>
<p>By comparing the ratios of assets and debt the RBA also produces ratios of household and housing debt to assets.  The data reiterates that although debt levels are high, at this stage that debt is well supported by assets which are valued substantially higher.  Over recent years the ratios of household and housing debt to assets has actually been falling.  In June 2017, the ratio of household debt to assets was recorded at 20.7% and the ratio of housing debt to assets sat at 26.4%.  </p>
<p><img src="https://www.corelogic.com.au/sites/default/files/styles/article_image_570w_/public/2017-10/2017-10-09-ppimage3.png" alt="2017-10-09--ratioofhouseholdandhousingdebttoassets" width="570" height="283"></p>
<p>A big contributor to the declining ratio of debt to assets over recent years has been the ongoing fall in interest rates to their current lows.  The RBA publishes ratios of interest payments to disposable income for household and housing debt.  The fourth chart highlights that households are paying significantly less interest currently than they were when interest rates were much higher.  At the end of June 2017 the ratio of household interest repayments to disposable income was 8.7% and for housing it was 7.1%.  Lower interest rates also mean that where there is a debt, debtors have the ability (if they choose) to maintain previous repayments which in turn means additional debt is repaid as interest rates fall.  </p>
<p><img src="https://www.corelogic.com.au/sites/default/files/styles/article_image_570w_/public/2017-10/2017-10-09-ppimage4.png" alt="2017-10-09--ratioofhouseholdandhousinginteretrepaymentstodisposableincome" width="570" height="281"></p>
<p>The data highlights that Australian households are heavily indebted, largely due to housing.  While debt levels are high, the value of household and housing assets are, at this stage, considerably greater than the level of debt.  Of course, if household and housing asset values begin to fall in the future, the accompanying debt may not fall at the same rate and that remains the main concern with the ongoing increase in household and housing debt.  Although Australia survived the financial crisis with much less damage than most other countries, it is noticeable how there was a fairly sharp rise in the ratio of household and housing debts to assets over that period.  A more sustained downturn could potentially see a much greater increase in these ratios as asset values fall but the debt against these assets remain.<br> </p>
<p><em>Cameron Kusher is head of research for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/"><span class="s2">here</span></a>.</em></p>
<p>To read the original article <a href="https://www.corelogic.com.au/news/household-debts-and-assets-hit-record-highs#.Wd6d5xOCyuV" target="_blank">click here</a>.</p>
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Household debt and assets reach record highs: Cameron Kusher

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<p>EXPERT OBSERVER</p>
<p>The ABS data showed that at the end of the March quarter, household net worth was $10.243 trillion.</p>
<p>While a large figure, household wealth has now fallen for two consecutive quarters and is -0.7% lower year-on-year. The $10.243 trillion in net worth is madeup of $12.701 trillion in assets and $2.458 trillion in liabilities. The recent fall in the value of assets at a time in which liabilities have continued to rise has led to the fall in net worth.</p>
<p>The Reserve Bank (RBA) analyses this data to produce a number of valuable ratios, including: debt, assets and interest payments to household disposable income.</p>
<p>These ratios highlight the impact of high levels of debt at a time in which asset values have fallen but the debt has not fallen at the same pace.</p>
<p>We’ve seen the ratio of household debt to disposable income continue to climb over the quarter, reaching a new historic high of 189.7%. The rise in household debt relative to incomes has certainly slowed; however, it continues to edge higher.</p>
<p>The ratio of housing debt to disposable income is recorded at 140.1% and was unchanged over the quarter. While it was unchanged over the quarter, it remains at an historic high level, highlighting that households remain very sensitive to the cost of mortgage debt.</p>
<p>Turning to the ratio of household assets to disposable income, it was recorded at 927.0% in March 2019. The ratio peaked at 961.7% in December 2017 and has trended lower since. The ratio of housing assets to disposable income peaked at 529.6% in December 2017 and as at March 2019; it was recorded at 483.5%.</p>
<p>The reduction in housing values has coincided with the period in which the ratio of household and housing assets has fallen which is no wonder when you consider housing accounts for around half of the value of household assets. </p>
<p>It's also important to consider is that while the value of assets are falling there has been no reduction in the ratios of debt to income which highlights that asset depreciation has been greater than debt reduction. As a result, the ratio of household debts to assets is at 20.5%, the highest it has been since December 2014 and the ratio of housing debt to assets is at 29.0%, the highest it has been since June 2013.</p>
<p>Despite the lowest interest rates since the 1960s, the ratio of interest payments to disposable income has trended higher years. As at March 2019 the ratio was recorded at 9.1% and although it has been steady for three quarters, interest payments relative to disposable income has trended higher on an annual basis</p>
<p>Furthermore, the ratio of interest payments to disposable income was last this high in September 2013. It is a similar story for the ratio of housing interest payments to disposable income, which is also trending higher, recorded at 7.6%, which is the highest ratio since June 2013.</p>
<p>With interest rates at generational lows there was perhaps, some expectation that households would use the low rates to pay off some debt however that has largely not occurred. With asset values recently falling the data shows that debt pay off has not been as rapid as the declines leading to a reduction in household wealth.</p>
<p>This data is to March 2019 and by the end of June 2019, there were some tentative signs that the declines in dwelling values were starting to level. While this means that there is likely to be a further decline in household wealth over the June quarter, it also suggests there is unlikely to be a meaningful reduction in household debt levels.</p>
<p>As such, household debt levels are likely to remain amongst the highest in the world. At the same time, the value of household assets remain substantially higher than the value of the debt. The cause for concern will be what happens if economic conditions deteriorate materially, leading to weaker labour market conditions and potentially creating some challenges around servicing such high levels of debt as unemployment rises.</p>
<p>Another medium to long-term consideration is a scenario where interest rates eventually start to rise. Households are generally able to service high levels of household debt while interest rates are at record lows, but eventually (probably not for at least several years) interest rates will rise.</p>
<p>If household debt levels remain high relative to incomes under a higher interest rate environment, the result could be weakness in household spending (as households dedicate more of their income towards servicing their debt) and potentially higher levels of financial stress amongst heavily leveraged households.</p>
<p><em>CAMERON KUSHER is the head of research for the Australian branch of CoreLogic</em></p>
<p><em>Kusher regularly posts on the <a href="https://www.corelogic.com.au/news" target="_blank">CoreLogic website</a>.</em></p>
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Australian Household wealth falling while debt remains: Cameron Kusher

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<div>EXPERT OBSERVATION</div>
<div> </div>
<div>There was a flurry of excitement back in January when previously reported 2017 figures implied that Australia's household debt pile had temporarily nudged against twice disposable income. </div>
<div> </div>
<div>However, the headline number was subsequently revised down.</div>
<div> </div>
<div>The latest ratios from the Reserve Bank of Australia (RBA) show household debt now sitting at at 1.9x disposable income.</div>
<div> </div>
<div>Or 190.13 per cent as at March 2018, to use a bit of false precision, up from 183.51 per cent a year earlier. </div>
<div> </div>
<div>Click here <a href="https://4.bp.blogspot.com/-Jg6DW-0Q4mU/WzqepI3WnUI/AAAAAAAAq2g/IgMCJx3uRN4KTafsk-RgZdhKL9lqNlKiACLcBGAs/s640/RBA1.jpg" target="_blank">to enlarge.</a>
</div>
<div> </div>
<div class="separator"><img src="https://4.bp.blogspot.com/-Jg6DW-0Q4mU/WzqepI3WnUI/AAAAAAAAq2g/IgMCJx3uRN4KTafsk-RgZdhKL9lqNlKiACLcBGAs/s640/RBA1.jpg" width="640" height="392" data-original-height="803" data-original-width="1310"></div>
<div> </div>
<div>There's a lot of debate about what this debt ratio should or shouldn't be.</div>
<div> </div>
<div>It will probably remain higher than was previously normal given the structure of Australia's population and immigration profile, with policy generally taking a keener regard of interest payments and serviceability. </div>
<div> </div>
<div>Although this is a revised series high, the rate of increase has slowed somewhat (while the gross figure also doesn't account for the record mortgage buffers and use of offset accounts racked up through this cycle).</div>
<div> </div>
<div>Moreover, given the precipitous drop in both the stock and flow of interest-only mortgages the ratio is likely to peak relatively soon as income growth also moves beyond the nadir. </div>
<div> </div>
<div>Anecdotally lenders are making it very difficult for brokers and borrowers to see loans written at the present time, which I believe will see the seasonally adjusted monthly value of investment loans pushed down to around $10 billion by the middle of the year, from nearly $15 billion at the 2015 peak.</div>
<div> </div>
<div>Money growth is now at its lowest level in 26 years, and investor credit growth is at a record low of just 2 per cent, even before accounting for headcount growth and inflation. </div>
<div> </div>
<div>
<span>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and </span><a href="https://petewargent.blogspot.com/" target="_blank">blogger</a><span>.</span>
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Household debt higher over 12 months to March

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<div>
<div>
<p>Household finance data released by the Reserve Bank (RBA) each quarter looks at the ratios of household debts and assets to disposable income. The latest RBA update shows that while households debt is growing, asset wealth is simultaneously increasing. </p>
<div title="Page 1">
<div>
<div>
<div>
<p>According to the RBA, the ratio of household debt to disposable income was recorded at 193.7% at the end of June 2017 and now sits at a record-high having increased by 2.0% over the quarter and by 3.9% over the year.</p>
<p>According to CoreLogic research analyst Cameron Kusher it was not surprising to see that most of this debt is housing related; the ratio of housing debt to disposable income is recorded at 136.4% having increased by 1.4% over the quarter and 3.9% over the year.</p>
<p>Kusher said, “Clearly, household and housing debt has increased over time relative to disposable incomes. Of note is that since the financial crisis, the rate of escalation has slowed.”</p>
<p>Further data from the RBA reveals that of the 136.4% ratio of housing debt to disposable income, 103.2% is held by owner occupiers with the remaining 33.2% held by investors.</p>
<p>At the end of June 2017 the ratio of household assets to disposable income was recorded at 935.6% and the ratio of housing assets to disposable income was 516.5%, both of which were record highs. Over the past year household assets and housing assets have increased by 6.6% and 7.8% respectively, well in excess of the increase in household and housing debt.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/10/05/Kusher1.png" target="_blank">Click to enlarge</a></p>
<p> <img src="https://www.urban.com.au/images/2017/10/05/Kusher1.png" alt=""></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/10/05/Kusher2.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/10/05/Kusher2.png" alt=""></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/10/05/Kusher3.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/10/05/Kusher3.png" alt=""></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/10/05/Kusher4.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/10/05/Kusher4.png" alt=""></p>
<p>By comparing the ratios of assets and debt the RBA also produces ratios of household and housing debt to assets. Mr Kusher said, “The data reiterates that although debt levels are high, at this stage debt is well supported by assets which are valued substantially higher.”</p>
<p>Over recent years the ratios of household and housing debt to assets has actually been falling. In June 2017, the ratio of household debt to assets was recorded at 20.7% and the ratio of housing debt to assets sat at 26.4%.</p>
<p>According to Kusher, a big contributor to the declining ratio of debt to assets over recent years has been the ongoing fall in interest rates to their current lows. At the end of June 2017 the ratio of household interest repayments to disposable income was 8.7% and for housing it was 7.1%. Lower interest rates also mean that where there is a debt, debtors have the ability (if they choose) to maintain previous repayments which in turn means additional debt is repaid as interest rates fall.</p>
<p>He said, “The latest household finance data from the RBA highlights that Australian households are heavily indebted, largely due to housing. While debt levels are high, the value of household and housing assets are, at this stage, considerably greater than the level of debt.”</p>
<p>“Of course, if household and housing asset values begin to fall in the future, the accompanying debt may not fall at the same rate and that remains the main concern with the ongoing increase in household and housing debt.</p>
<p>“Although Australia survived the financial crisis with much less damage than many other countries, of note was the fairly sharp rise in the ratio of household and housing debts to assets over that period. A more sustained downturn could potentially see a much greater increase in these ratios as asset values fall but the debt against these assets remain,” Mr Kusher said. </p>
</div>
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<p> </p>
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Household debt growing slower than asset wealth as both hit record highs

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<p class="post-title entry-title">EXPERT OBSERVER</p>
<p class="post-title entry-title">It's like<em> deja vu </em>all over again! </p>
<div id="post-body-5346701206206902946" class="post-body entry-content">
<div>The historic ratio of household debt to disposable income was once again revised down, but the trajectory remained up. </div>
<div> </div>
<div>And in the end, we ended up back in the same old place, with an Aussie household debt ratio still at 1.9x disposable income. </div>
<div> </div>
<div>Note that the impact of tax and rate cuts has yet to flow through fully to these figures, so behavioural patterns could change going forward. </div>
<br><div class="separator"><img src="https://1.bp.blogspot.com/-E1JICRVccs4/XY2p48YKbqI/AAAAAAAAx_E/iSC6SMuc62Yj4H-65nfDIT5IdyvUEI7mQCNcBGAsYHQ/s640/RBA1.jpg" width="640" height="378" data-original-height="808" data-original-width="1366"></div>
<div> </div>
<div>The 'record high' headlines will naturally follow in due course, although the ratio was ostensibly about 200 per cent a couple of years ago - before previous revisions were pushed through - and the growth in housing credit has since been crunched lower (to record lows for housing investors, at zero growth). </div>
<div> </div>
<div>The bulk of Australia's household debt remains concentrated in the upper two income quintiles, while net of a huge surge in prepayments the debt-to-income ratio is pretty much unchanged since 2006. </div>
<div> </div>
<div>Treasurer Frydenberg was also lightning quick off the mark to highlight that the value of assets was 5x that of the debt. </div>
<div> </div>
<div>Meanwhile the ratio of household interest payments to disposable income continued to fall and sow sits well under 9 per cent.</div>
<div> </div>
<div>This ratio is now some 33 per cent lower than at the 2008 peak, and trending lower (it was also higher in the late 1980s than it is today):</div>
<br><div class="separator"><img src="https://1.bp.blogspot.com/-p9EkMGT4dH4/XY2p49HieWI/AAAAAAAAx_A/AJhLZqxNtjAwS6pUx5zeVs07A6IQAmC-ACNcBGAsYHQ/s640/RBA2.jpg" width="640" height="370" data-original-height="813" data-original-width="1404"></div>
<div> </div>
<div>Interest rates have since fallen further in the September quarter, so further declines are in the post.</div>
<div> </div>
<div>There has been some mortgage stress, even in spite of the household interest payments ratio being down by a third, mainly experienced in Western Australia and largely related to the forced interest-only mortgage reset.<br><br><div class="separator"><img src="https://1.bp.blogspot.com/-kzDI0RPnsOI/XY245qcXHRI/AAAAAAAAx_k/poT5fkvt4uYJppj8l-6cjZan2M6BGJG3wCNcBGAsYHQ/s640/sandp.jpg" width="640" height="360" data-original-height="803" data-original-width="1422"></div>
<br>That said, S&amp;P expects arrears to fall as repayments have become easier. <br><div> </div>
<div><em>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>. </em></div>
</div>
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Interest repayments continue to get easier: Pete Wargent

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<p>EXPERT OBSERVER</p>
<p>Australian household debt levels have increased substantially over the past thirty years, with the ratio of household debt to annual disposable income rising from 68% in June 1990 to a recent peak of 188.5% in June 2019. Since June last year, the ratio has reduced slightly to 185.0%. Most of the debt held by households is housing debt, which comprises around 76% of overall household debt. Thirty years ago housing debt comprised a much smaller 46% of overall household debt.</p>
<p>The skew towards housing debt can also be seen in the latest Household Income and Wealth survey from the Australian Bureau of Statistics, which showed the median value of debt held against owner occupied dwellings was $102,600, compared with a median debt level of $5,000 for student loans, $3,000 on credit cards and $3,700 on car loans. Most of Australia’s household debt accrual occurred between 1990 and 2010.</p>
<p>The ratio of household debt to income increased by 45.7 percentage points between 1990 and 2000, and by another 49.3 percentage points between 2000 and 2010. The past decade has seen growth in the ratio more than half to 21.5 percentage points, with most of that growth aligned with the property boom between late 2012 and 2017.</p>
<p>Importantly, the value of assets held against the debt has recorded a more significant increase, pushing household net worth to new record highs at the end of 2019. Residential dwellings comprise by far the largest component of household assets, totaling $6.8 trillion, or 53% of household wealth. Household debt levels are important for two reasons.</p>
<p>Heavily indebted households are generally more vulnerable to a ‘shock’ such as job loss, illness or a sharp rise in the cost of debt, which in turn has implications for financial stability. The other key area of concern relates to household spending; heavily indebted households may be more likely to save rather than spend during periods of uncertainty or economic hardship. With around 60% of Australia’s economy dependent on household consumption, a sustained drop in spending activity would have a negative impact on economic growth.</p>
<p>These risks were recently covered in detail by the RBA in a discussion paper released in May this year. The outcomes of the paper noted the risk to financial stability was likely to be relatively low due moderate loan-to-valuation ratios on residential mortgages. In separate analysis from the latest Financial Stability Review, the RBA notes that only 3% of Australian mortgages are thought to be in negative equity. The risks associated with high household debt levels weighing on consumption are more substantial, especially under a scenario where housing prices fell.</p>
<p>While household debt is high, and potentially a concern for consumption, servicing debt is at its most affordable since 1999 due to record low interest rates. The ratio of housing interest payments to household disposable income has more than halved since 2008, from a high of 13.3% to 6.4% in June 2020. With interest rates moving lower since June, it is likely the ratio has fallen even further. Another factor helping to minimise risk is the fact that asset values are substantially higher than the debt held against them.</p>
<p>The ratio of household debt to household assets was 19.4% and the ratio of housing debt to housing assets was 28.2% in June 2020, implying a remarkably large amount of equity is held within the household sector. Other factors helping to alleviate risk associated with high household debt, and potentially support a reduction in debt levels are credit policy and less consumer appetite for credit. Lending standards have improved over the past five to ten years, with a trend towards fewer loans originating with a high loan to valuation ratio and substantially fewer interest only loans.</p>
<p>9.2% of home loans were originated with a deposit of 10% or less in June this year, down from a recent peak of 22% in 2009. Similarly, interest only loans comprised almost 46% of new home loans in mid2015, but have averaged only 17% of new lending since mid-2017. Additionally, loans with a high loan to income ratio have remained low, with June data showing only 5.8% of new home loans were originated with a loan to income ratio of 6% or higher.</p>
<p>It is clear that households became more risk averse through the worst of the COVID period. National accounts data showed the household saving ratio skyrocketed to almost 20% through the June quarter, up from 2.5% in the June quarter of 2019. Given that the virus curve has flattened and consumer sentiment surged in recent months, it is likely the saving ratio will drop. Additionally, the trend in personal credit, which has been in negative monthly growth territory since late 2019, has plummeted since March.</p>
<p>Although the risks around high household debt are manageable at the moment, interest rates will eventually rise down the track.</p>
<p>As debt servicing costs move higher, a heavily indebted household sector would need to devote more of their income towards servicing debt and less to spending, which implies a medium-to-long term risk to household spending. This implies high debt levels may also stagger and slow an economic recovery. If increases in housing debt servicing costs result from higher interest rates, the exacerbated drag on spending could slow economic growth.</p>
<p>Additionally, with household debt remaining high, the sector is more exposed to unforeseen events such as job loss and illness, as well as black swan events like a pandemic or financial crisis. It is likely policy makers and regulators will be keeping watch for any signs of rising household debt or slippage in lending standards that could lead to higher household debt.</p>
<p>Higher LVR lending or higher loan to income ratios could be the trigger for a new round of macro-prudential style intervention. Recent macro-prudential interventions targeted interest only lending and growth in lending for investment housing through 2014 and 2019. Future interventions may be aimed at keeping a lid on household debt levels, and minimizing longer term risk, via firm limits on loan to valuation ratios, loan to income ratios or debt to income ratios.</p>
<p><strong>TIM LAWLESS </strong><em>is the research director Asia Pacific at CoreLogic</em></p>
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