( graph 4 ). graph 4 this section of my talk draws extensively from jacobs d and a rush ( 2015 ), “ why is wage growth so low? ”, rba bulletin, june, pp 9 – 18. bis central bankers ’ speeches there are a number of reasons why wage growth may have been so responsive this time around. 4 for example : • during the boom in commodity prices and mining investment, wage growth increased noticeably and the exchange rate appreciated significantly. this left our wage costs in foreign currency terms quite high once commodity prices had peaked. the subsequent fall in commodity prices was associated with relatively low growth of wages over recent years which, alongside some depreciation of the exchange rate, is helping to restore earlier levels of competitiveness. 5 • wages may have become more flexible over time. it may be that there has been some general shift in the bargaining power of labour. also, those industries most exposed to the declines in commodity prices and mining investment have a high share of individual employment contracts. furthermore, the relatively long span of the current episode means that most employment contracts have been renegotiated during the period of subpar economic growth over recent years. whatever the reason for the very low growth in labour costs, wage flexibility has assisted with the labour market adjustment. changes in relative wages act as an incentive for labour to move. strong increases in wages in the resource sector ( in both domestic and foreign currency terms ) helped to attract the labour needed to undertake the substantial increase in mining investment ( including from overseas ). all of these things are now adjusting in the other direction. the weaker wage growth and decline in job opportunities relative to many other countries has probably contributed to the lower growth in the population and labour supply. in addition, low wage growth across the economy has enabled firms to employ more labour than would otherwise have been the case. even so, my sense is that low wage growth only goes some way to explaining the recent pick - up in labour demand. compositional change while aggregate gdp growth has been moderate, the composition of economic activity may have underpinned a rise in the demand for labour of late. growth in consumption, dwelling investment and net service exports have increased over the past year even though gdp growth has eased back a touch in year - ended terms ( graph 5 ). see jacobs and rush ( 2015 ) for a more comprehensive discussion of these points. this sort of adjustment was to be expected. for a conceptual framework see plumb m, c kent and j

. nationally, growth in rents is the lowest for some decades. so it ’ s a complex picture and there is not a single story that applies across the country. but, as is often the case in economics, it largely comes down to supply and demand. on the demand side, population growth in australia – especially in our largest cities – picked up unexpectedly in the mid 2000s and it is only in the past couple of years that the rate of home building has responded. this imbalance was compounded by insufficient investment in the transport infrastructure needed to support our growing population. nothing increases the supply of well - located land like good transport links. underinvestment in this area is one of the factors that has pushed housing prices up. put simply, the supply side simply did not keep pace with the stronger demand side. the result has been higher prices. not surprisingly, the rising prices have encouraged people to buy residential property as an investment in the hope of ongoing capital gains. with global interest rates so low, many investors have found it attractive to borrow money to invest in appreciating residential property. this has reinforced the upward pressure on prices. this configuration of ongoing increases in indebtedness and rising housing prices has been discussed at length by the council of financial regulators. this council, which i chair, brings together the heads of the rba, apra, asic and the australian treasury. the concern has not been that these developments have posed a risk to the stability of our financial system. our banks are resilient and they are soundly capitalised. instead, the concern has been that the longer the recent trends continued, the greater the risk to the future health of the australian economy. stretched balance sheets make for more volatility when things turn down. given this, over the past couple of years there has been a concerted effort by apra to encourage lenders to strengthen their lending standards. this followed deterioration in these standards a few years ago. also, at the end of 2014, when growth in investor lending was accelerating, apra announced that it would pay very close attention to lenders whose investor loan portfolios were growing faster than 10 per cent. it did so with the full support of the rba. this guidance helped pull the whole system back and has made a positive contribution to overall financial stability. so too has asic ’ s focus on responsible lending. these measures constrained some higher - risk lending and reinforced the message to lenders that they need