debt to household income have been increasing again. lower interest rates both in real and nominal terms – this time, largely reflecting global developments – have again played some role. but there have also been other important factors at work over recent times. one of these is the slow growth in household income. during the 2000s, aggregate household income increased at an average rate of over 7 per cent ( graph 3 ). in contrast, over the past four years growth has averaged less than half of this, at about 3 per cent. slower growth in incomes will push up the debt - to - income ratio unless growth in debt also slows. this partly explains what has happened over recent years. a second factor is that some of our cities have become major global cities. reflecting this, in some markets there has been strong demand by overseas investors. a third factor has been stronger population growth. population growth picked up during the mining investment boom and, although it subsequently slowed, it is still around ½ percentage point faster than it was before the boom ( graph 4 ). for some time the rate of home - building did 4 / 14 bis central bankers'speeches not respond to the faster population growth ; indeed, the response took the better part of a decade. the rate of home - building has now responded and we are currently adding to the housing stock at a rate not seen for more than two decades. over time, this will make a difference. it is melbourne and sydney where population growth has been the fastest over recent times. not surprisingly, it is these two cities where the price gains have been largest, and these price gains have helped induce more supply. indeed, victoria and new south wales account for all of the recent upward movement in the national housing price - to - income ratio ( graph 5 ). in the other states, the ratio of housing prices to income is below previous peaks. so there is not a single story across the country. this is despite us having a common monetary policy for the country as a whole. factors other than the level of interest rates are clearly at work. 5 / 14 bis central bankers'speeches in summary then, the supply - demand dynamics have been pushing aggregate housing prices in our largest cities higher relative to our incomes. with interest rates as low as they have been, and prices rising, many people have found it attractive to borrow money to invest in an asset whose price is increasing. the result has been strong growth in borrowing by investors, with investors accounting for 30 to 40 per cent

target for the debt - to - income ratio or the ratio of nationwide housing prices to income. as i spoke about earlier, there are good reasons why these ratios move over time. my judgement, though, is that, in the current environment, the resilience of our economy would be enhanced by an extended period in which housing prices and debt outstanding increased no faster than our incomes. again, this is not a target or a policy objective of the reserve bank, but rather a general observation about how we build resilience. many of you will be aware that these issues have figured in the deliberations of the reserve bank board for some time. this is entirely consistent with our flexible medium - term inflation targeting framework. with a medium - term target, it is appropriate that we pay attention to the resilience of our economy to future shocks. in the current environment of low income growth, faster growth in household debt is unlikely to help that resilience. we have also been watching the labour market closely. the unemployment rate has moved up a little over recent months and wage growth remains subdued. encouragingly, employment growth has been a bit stronger of late and the forward - looking indicators suggest ongoing growth in employment. we will want to see a continuation of these trends if the overall growth in the economy is to pick up as we expect. stronger growth in incomes would of course also help people deal with the high levels of debt and housing prices. overall, our latest forecast is for economic growth to pick up gradually and average around 3 per cent or so over the next few years. to conclude, i hope these remarks help provide some insight into the reserve bank ’ s thinking about housing prices and household debt. as household balance sheets have changed, so too has the way that the economy works. both from an individual and an economy - wide perspective, 13 / 14 bis central bankers'speeches we need to pay attention to how the higher level of debt affects our resilience to future shocks. thank you. i look forward to your questions. 1 when balances in offset accounts are taken into account, the recent rise in household debt is less pronounced, although the household debt - to - income ratio has still risen to a record high. 2 for rba analysis of this issue see kohler m and m van der merwe ( 2015 ), ‘ long - run trends in housing price growth ’, rba bulletin, september, pp 21 – 30 and rba ( 2003 ) ‘ household