Housing might be more affordable for Australian first-time buyers than many people think

Photo: William West/ AFP/ Getty Images.

Housing affordability is a hot topic in Australia right now, almost as hot as some of the price growth seen in Sydney and Melbourne, Australia’s largest and most expensive markets, over recent years.

Scott Morrison is concerned, as is the newly-appointed assistant to the treasurer, Michael Sukkar. And on the day she was sworn in as the premier of New South Wales, Gladys Berejiklian said that addressing housing affordability was one of her top priorities as leader.

Australia’s politicians are looking at ways to address mounting community concern, but perhaps affordability, particularly for first time buyers, is not as acute as the headlines, and figures, would suggest.

Following the release of the latest quarterly residential property survey from the National Australia Bank earlier today, an excellent deep dive as to what is being seen in Australia’s housing market, one section in particular immediately jumped out from the report.

According to those who work in the property industry, the proportion of sales to first time buyers actually rose in the December quarter, both for owner-occupiers and investors.

Survey respondents said that first home buyer (FHB) owner occupiers accounted for 19.6% of all new property sales, up from 19% in Q3, while FHB investors accounted for 13.5% of all sales, again up on the 12.2% level seen in the previous quarter.

“In total, FHBs accounted for 33.1% of all new property sales in Q4, up from 31.2% in the previous quarter — their biggest share since the first quarter of 2016,” said the NAB. “Both FHB groups are expected to play a bigger role in new property markets in the next year.”

So nearly a third of all new property sales went to first time buyers last quarter, be they owner occupiers or investors — not exactly a statistic that rings alarm bells over housing affordability.

Here’s how that proportion ranks alongside other buyer segments in the new housing market last quarter.

Source: NAB

And while first time buyers made up a smaller proportion of sales of existing property during the quarter, the numbers were once again higher than what many would expect when sales to first time investors were taken into consideration.

According to the NAB, sales to owner occupiers accounted for 15.6% of all sales in established property markets in Q4, down substantially on the 19.3% level reported in the previous quarter.

That proportion is similar to that conveyed by the ABS in recent housing finance data, and fits nicely with the view that housing affordability is deteriorating given the slowdown was led by sales in New South Wales and Victoria, those states where concerns are most acute.

However, when first time investor numbers were taken into consideration — something not captured by the ABS data — the proportion of sales were significantly higher.

The NAB said that FHB investors accounted for 12.9% of all existing property sales during the quarter, up from 10.6% in Q3, “with these buyers much more active in NSW and QLD”.

Combined, FHB’s accounted for 28.6% of all established property sales last quarter, slightly below the 29.9% level in Q3, but still a high proportion nonetheless.

Based on the responses received in this survey, it indicates that an increasing number of first time buyers are merely entering the property market as investors rather than owner occupiers, casting doubt as to whether affordability constraints are really as acute as some believe based solely off owner occupier numbers.

Of course, some first time buyers may be part of a household that already owns property under a different legal entity.

As this chart reveals, while the proportion of sales to owner occupier first time buyers have been edging lower, at the same time those to first time investors have been edging higher.

Source: NAB

For all the negative generalisations that have been used to describe prospective first time buyers recently — that they are frivolous with money, eating $22 smashed avocado with crumbled feta on five-grain toasted bread while lamenting that their favourite inner city ‘hood is way too expensive to buy — there’s now tentative evidence emerging that suggests many can now eat their hipster breakfast and be a landlord too.

The NAB survey was constructed using a responses from around 250 panellists including real estate agents/managers, property developers, asset/fund managers and owners/investors.

Clearly a plethora of vested interests, and one that will ensure the debate over housing affordability will continue for another day.

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