denying that there is a significant number of people who are facing difficulties with housing loan repayments, especially in western sydney where arrears rates are significantly higher than in other parts of australia. while lending standards in australia did not deteriorate to anywhere near the same extent as in the us, loans sourced from new, non - traditional lenders have ended up with higher rates of arrears than those of traditional lenders. the arrears, even on prime, full - doc loans made by this new group of lenders are three times higher than those on similar loans sourced from the major banks. in addition, a higher proportion of loans granted by these lenders were lowdoc or non - conforming, the arrears rates on which are significantly higher than those on prime loans. one can only conclude that these lenders had lower credit standards than traditional lenders, and while this may have benefited some borrowers, it has ended up causing significant hardship for others. graph 7 one of the issues that has been highlighted by events in the us is the importance of having adequate regulation of lending and loan brokers. in australia, all lenders were covered by the uniform consumer credit code but loan brokers were much more lightly regulated, until very recently. the council of australian governments earlier this year recognised that regulation needed to be strengthened and agreed to transfer responsibility for the regulation of all consumer credit to the commonwealth. this is due to take effect by the middle of next year and should ensure that regulation of this very important financial activity is put on an even sounder footing. conclusion we are going through some uncertain financial times at present, which is leading some to question whether the period of prosperity that has been running for almost two decades has come to an end. while nobody can predict accurately all that lies ahead, it is important not to become too pessimistic because, fundamentally, household finances and the economy more generally remain in good shape. the main problem that had built up – inflation – is manageable and is being dealt with. the next couple of years will be noticeably more subdued than the past five. we should not be surprised by this as the income and wealth generated over the past five years were simply extraordinary. by definition, the economy must grow at a below - average pace for some of the time. these periods provide the economy with the breathing space to sustain the expansion. there is no reason to assume that the next year or two will not do the same.

unsold new houses in australia. in fact, the consensus is that there is currently a shortage of dwellings. the australian housing boom ended because prices rose to levels that severely strained the financial capacity of buyers to pay higher prices, not because too many houses were built, as in the us. the overhang of unsold houses in the us has created downward pressure on house prices as builders and developers have been forced to sell. this is absent in australia. rather, the shortage of housing here means that there are buyers waiting for better circumstances – e. g. lower interest rates or rising incomes – to facilitate their entry to the market. this latent underlying demand for housing is a factor that will support the market. a third important difference between australia and the us is in the groups that the lenders targeted, and in the loan terms on offer. in australia, the lending boom was concentrated on existing home owners who traded up to bigger and better houses and bought investment properties. many of these were people in their 40s and 50s who previously had low levels of debt. at the end of the boom, the home ownership rate in australia was no different to that at the start ; in both cases about 70 per cent. while one could argue that no socially productive purpose was served by this increased lending to middle - aged existing home owners, it did mean that the loans largely went to those who had a strong capacity to service and repay them. as a result, whereas most other countries with housing booms have experienced a strong rise in arrears on housing loans once the boom ended, in australia the arrears rate is today no higher than it was at the start of the boom in the mid 1990s. and, of course, it is low by international standards. graph 6 in the us, in contrast, a lot of the lending found its way to more marginal borrowers who previously could not afford a loan, or it took the form of aggressively structured mortgages which allowed people to borrow much more than they previously could. the home ownership rate in the us continued to rise during the first years of the boom. one could argue that this was a good thing, but one consequence was that a significant proportion of this group ended up having trouble servicing their loans ; hence, the sharp rise we have seen in us loan delinquencies. in setting out these differences, i don ’ t want to leave the impression that the australian housing market is without its problems. there is no