Current State of Housing Finance

November 17th, 2014
Home lending in Australia continues to rise, with property investors outpacing owner occupiers and first home buyers continuing to struggle. According to the latest data from the Australian Bureau of Statistics (ABS), total loans rose 2.3 percent on a seasonally adjusted basis in September to reach $28.87 billion. While investor loans rose 3.7 percent, owner occupier loans rose just 1.4 percent and first home buyer loans accounted for just 7 percent of total housing finance.

The growing divide between investor and owner occupier activity is a clear stand-out in the figures, with investment housing having risen from less than 7000 million at the start of 2011 to almost 12000 million today. ; According to investment bank UBS, this represents a cumulative rise of 83 percent in three years, as investment loans “continue to increase sharply towards half of all home loans, something the Reserve Bank has characterised as becoming unbalanced.”

In terms of monthly trend estimates, the total value of dwelling commitments in Australia reached 28,595 million in September, up 0.7 percent from the month before. ; Owner occupier housing loans reached 16,899 million for the month, up just 0.1 percent from August. ; Investment housing went up 1.7 percent for the month to reach 11,696 million. ; If these trends continue, the discrepancy between investment commitments and owner occupier commitments could be even greater next year.

When the number of dwelling commitments is analysed instead of their value, the difference between investment finance and owner occupier finance is made ever clearer. ; While the construction of new dwellings went up 3.1 percent over the year on a seasonally adjusted basis, owner occupied housing commitments fell 0.7 percent. ; The purchase of new dwellings remained steady for the year, with the purchase of established dwellings falling by 1.3 percent.

First home buyer numbers are also causing some concern, with first home buyer activity currently accounting for just 12 percent of all owner occupier home loans and just 7 percent of total housing finance. ; While NAB have first home buyers at a much higher level of 17.22 percent of the new home market, rising values in Sydney and Melbourne and the increasing investment finance market continue to stretch many first home buyers beyond their limits.

The unbalanced nature of housing finance in Australia has been noted by the RBA, with the Reserve Bank blaming investors rather than first home buyers for driving prices higher. ; After noting their concerns in September, the RBA have said they are looking into possible solutions, including talking to other regulators about tightening bank lending standards and reducing the amount of available credit.

According to CommSec economist Savanth Sebastian, however, the RBA are between a rock and a hard place as they look for a way to dampen investment without slowing down the entire housing market: ; “In terms of what the Reserve Bank can do to blunt that investor market without seeing a substantial pullback in the housing market is an ongoing question... ; You’ve got such uncertainty around business investment, so you need the housing sector to drive growth.”