If there was doubt that the odds are stacked against Australian first-home buyers right now, it is surely found in the chart below from CoreLogic.
It shows the percentage of housing loans in dollar terms going to that cohort compared to Australian housing investors going back to 1992, using housing finance data supplied by the Australian Bureau of Statistics (ABS).
More than a little telling, even forgiving that a component of investors are first-time buyers entering the market as investors. There’s no hard data that shows just how many are now entering the market as investors rather than owner-occupiers, although it’s unlikely to be significant.
According to Cameron Kusher, research analyst at CoreLogic, the total percentage of housing loans that were issued to first-home buyers in January this year stood at just 7.1%, the lowest level on record.
And, aside from a bump in 2009 when increased first-home buyer grants were introduced to bring forward demand in the wake of the global financial crisis, the decline has been part of a long-standing trend.
At the same time, the amount of lending going to investors, aside from a brief glitch recently caused by a regulator-enforced slowdown to cool investor activity in the market, has been steadily moving higher.
It stood at 39% in January, and is seemingly increasing back towards the record highs seen in 2015.
“As the level of lending to investors has increased over recent years, it has done so at the expense of owner occupier first-home buyers,” said Kusher in a blog posted on the CoreLogic website.
“Except for briefly in 1992, investors have consistently outweighed owner occupier first-home buyers in terms of housing finance demand.”
And while the proportion of lending going to investors is greater than to first-time owner occupiers in all Australian states and territories, it’s clear that the gap between the two is not consistent across the country.
Here’s the same chart shown above, but only for New South Wales.
Just 3.4% of lending in New South Wales went to first-time owner occupiers in January, the lowest level on record. In comparison, lending to investors rose to 46.9%, the highest proportion since July 2015 before APRA’s 10% annual cap on investor credit growth began to bite.
And this is the same chart for Victoria.
Like New South Wales, the proportion of lending to first-time buyers in the state fell to 7.7%, a record-low. At 37.5%, the proportion to investors was also the highest since July 2015.
These are the states with the most expensive property markets — particularly the capitals Sydney and Melbourne — and they are also the major reason that the housing affordability debate has ratcheted up several notches over the past year.
Price growth well in excess of 10% in both capitals over that period, on top of enormous gains in previous years, has all but ensured that.
Is it any wonder they’re expensive, and why first-time buyers are struggling to enter the market.
In the bidding battle between the two, it’s being clearly won by investors.
Kusher says there’s a simple explanation why the divide between the two groups continues to widen: investors often have significant built-up equity thanks to prior property price gains.
“Investors have consistently outweighed owner occupier first-home buyers in terms of new mortgage borrowing. This shouldn’t really surprise anyone given that most investors already have a residential property asset and many of which use at least a portion of the equity in that asset to fund the investment,” says Kusher.
“First-home buyers don’t have the existing foothold in the housing market and are always going to find it difficult to compete with borrowers that already have assets and equity.”
Indeed, and that’s before other factors such as education expenses and elevated levels of youth unemployment and underemployment are considered, a bug-bear many cite as other factors that are hindering housing affordability.
There is no easy fix, says Kusher — a statement few will disagree with given the complexity of dealing with a multi-speed, $6.4 trillion market with over $1.5 trillion in outstanding debt.
However, in order to improve affordability and bring more first-home buyers back into the market, he suggests it will probably have to involve further limitations on investors.
“I don’t believe that the balance between first-home buyers and investors is currently right and we should look at ways to cool some of the market’s current investment exuberance,” he says.
“We should also be cautious about encouraging excess demand from first-home buyers who may find it more difficult to repay mortgages once interest rates start to increase.”
Fairly sage advice, particularly at a time when the federal government is said to be considering allowing prospective buyers access to their super in order to obtain a housing deposit.
You can read Kusher’s full blog post, including the lending split for Australia’s other states and territories, here.