The Australian Bureau of Statistics this morning released its September housing finance data which showed a rise of 2.3% in the value of total dwellings to $28.87 billion.
The jump was made up of a 1.4% increase in owner-occupied housing to $16.93 billion and a stunning 3.7% jump in investment lending to $11.94 billion.
It’s another sign the market is being driven by investors utilising the tax shelter of negative gearing to out-compete non-investment and first home buyers.
It is also a sign that talk of macro-prudential regulations has had little impact on investors – except to perhaps drag forward demand from this sector as they seek to beat the deadline if it comes.
Australia is having a dangerous liaison with housing as the primary source of wealth accumulation and self-managed superannuation leverage and it shows the distortive effects of both negative gearing in aggregate and the tax-shelter it offers.
Indeed the UBS economics team of Scott Haslem and George Therenou have said in a note that the “investor surge led to housing becoming unbalanced”. It’s the fifth increase in a row and the ramp up in established dwelling prices shows everything that is wrong with negative gearing and leverage in super funds. It’s not adding to the economic stock just increases prices for everyone else.
As the one true source of animal spirits in the economy the rampant nature of investment borrowing and leverage which at 41.36% of all lending is another all time high means that other, productive assets, in the economy are neglected.
Imagine too if investors weren’t ramping up property and the RBA could lower rates again to help get the Aussie dollar lower. It would make Australian workers and businesses more competive on a global scale and it’s what the RBA is looking for. Then we might see real animal spirits emerge across the entire economy.
For now though investors are making it almost impossible for the RBA to do anything but hope that the wealth effect of housing eventually spreads into the rest of the economy.