There has been a lot of recent focus on the housing market and the distorting impact of investors out-bidding owner-occupiers, pricing them out of the market.
Prices in Sydney and Melbourne have grown strongly in the past 12 months and the percentage of first home owner loans have fallen to all-time record lows.
First home owners just can’t compete with investors using equity in other properties and the tax shelter of negative gearing to boost their borrowing power.
That’s a point Luci Ellis, RBA financial stability head, made to the House of Representatives inquiry into home ownership in Sydney yesterday.
“Investors typically have more equity and borrowing capacity than first home buyers and perhaps also other owner-occupiers, and might therefore be more able and willing to pay higher prices than other types of buyers for particular properties,” Ellis said.
“The result has been that the housing sales market has become unusually concentrated in investor activity, particularly in the larger cities. At the margin this has probably priced some aspiring first home buyers from properties they could otherwise acquire,” Ellis said.
Of course the question of the fairness of such a system which favours existing home owners over those trying to get into the market has fuelled some emotional debate.
But, in a frank admission yesterday, Ellis also said she’s glad governments haven’t fallen into the trap of trying too hard to help out first home buyers.
She said that even with the aforementioned ability of investors to out compete first home buyers and “while there has been much debate on this issue, from a financial stability point of view it is helpful that there has been no push to improve the position of first home buyers by easing lending standards. As recent experiences in other countries have shown, such a step would probably be counterproductive in the longer run.”
That sounds like a clear warning Ellis might think it’s a good thing that first home buyers haven’t been allowed to be sucked into the currently frothy Sydney and Melbourne housing markets.
Sure she doesn’t want them to take on too much debt. But, it also sounds like Luci Ellis might think prices are going to fall