The share of home lending to investors is at its highest level in almost a decade, as industry experts offer cautious optimism that the federal budget could help first home buyers compete.
Some 40.3 per cent of the value of home loans went to investors in the March quarter, ABS figures released on Wednesday show, the highest since the December quarter of 2016. This compares to 17.4 per cent for first home buyers.
Economists say first home buyers are likely to be able to better compete with investors after Tuesday’s budget, which will limit negative gearing tax concessions to newly built properties, while grandfathering existing arrangements, and scrap the capital gains tax discount in favour of taxing above-inflation gains. Investors in new builds may choose the old capital gains tax discount.
The budget also includes $2 billion for water and road connections to increase the supply of new housing. Treasurer Jim Chalmers expects to help about 75,000 Australians buy their first home over the course of a decade.
But experts warn housing is likely to remain expensive, and home buying hopefuls would need to prove they could afford a mortgage at high interest rates.
Cotality research director Tim Lawless said investor lending fell over the latest quarter – as interest rates rose and the war in the Middle East affected confidence – but owner-occupier lending fell further.
“Investors do tend to compete with first home buyers as part of aggregate demand, and they’re also generally active around fairly similar price points – around the median or lower,” he said.
“I think we probably will see less investment, and … less competition in that segment of the marketplace for first home buyers.
“But in the same sense, I think first home buyers are going to be still challenged to participate in the market – not necessarily because of the competition with investors, but because of the financial barriers and serviceability barriers that are still present.”
He said affordability was a challenge, as was a rule forcing buyers to prove they could repay a loan if interest rates rose 3 percentage points.
Richard Holden, professor of economics at UNSW Business School – who wrote the 2015 report for the McKell Institute on which Labor based its policy to limit negative gearing tax breaks at the 2016 and 2019 elections – also thought Tuesday’s budget could have some benefit for home buyers.
“I think the changes to negative gearing will help level the playing field between owner occupiers and investors,” he said.
“The CGT changes are less clear from my perspective, since they apply to all asset classes.
“What neither will do is make residential property a lot cheaper … to address that requires building a lot more houses. And that means lowering construction costs a lot.”
Dr Nick Garvin, research manager at the e61 Institute, called the budget’s property investment tax changes “a step in the right direction”.
He thought the changes would offer some boost to first home buyers competing with investors.
“It will have some effect, the question is how much. They’re competing with each other, but the degree to which a given change in investment attractiveness for investors translates into an improvement … for first home buyers is a bit more difficult to gauge,” he said.
“If there’s a first home buyer out there whose ability to pay was just below the investor, under the more generous tax settings, then changing those tax settings can push down an investor’s willingness to pay enough, [so] the first home buyer can get in and be the winning bidder.”
But he noted that although future investors will not be able to deduct their rental losses against their wages when they do their tax return each year, they will still be able to deduct losses from future capital gains.
“It’s changing when the losses can be deducted, but it’s not really changing the fact that the losses can be deducted.”
He also thought that the removal of the capital gains tax discount would reduce the incentive for investors to borrow such large amounts of money relative to their deposit to buy an investment property.
Real Estate Institute of Australia president Jacob Caine noted the government’s expectation of 75,000 new owner occupiers a year, and a tempering in home price growth of $19,000.
“That’s about 7500 a year. That’s not nothing, so in the simplest terms you’ve got to support an increase in the number of first home buyers,” he said.
“[But] there are more than seven million Australians living in rental homes and 75,000 over a 10-year period represents about one in 100 of those renters.
“I think it falls dramatically short of what it needed to do from a budgetary perspective to be really moving the needle around that particular ambition.
“The average prices in Sydney, in Brisbane, in Perth, in Melbourne, in Adelaide, are so astronomically high that even though $19,000 is a step in the right direction for them, it’s so far short for most renters in particular who are looking at the prospect.”
He called for the federal government and states to work together to reform stamp duty and for more supply of homes to improve affordability.
Henny Rahardja, principal buyers’ agent at OH property group, noted there was some overlap between the types of properties that investors and first home buyers target.
But she said they did not always try to purchase the same stock – owner-occupiers may be interested in an apartment building with a swimming pool, while investors may prefer low keep strata levies.
“If you’re looking at, for example, a house, there are far more first home buyers buying than there are investors … [because] the yield is so low for investors in Sydney,” she said.
Kristy Caskey, property advocate at The Property Bureau, said: “Anything that takes investors out of the market, brings down prices, less competition – it makes it easier for other audiences to buy.”
But she noted Melbourne first home buyers not only have access to the government’s low deposit schemes, but also apartments that have changed little in price over several years.
“There’s definitely still investors who, they’re thinking more long game,” she said. “Tax incentives are not the number one reason to buy.”
Elizabeth Redman is the national property editor at The Age and The Sydney Morning Herald.Connect via X or email.