Despite falling 0.9% from November, investor’s share of Australia’s housing loans in December 2016 still accounted for 48.7% of the total value al housing loans. The almost AUD13.2 billion of loan approvals for investors is a hot topic, feeding directly into the question of housing affordability for first-time buyers in particular. Prudential controls applied to major banks were intended to reign in lending to investors. While the controls caused investors to settle their appetites for a time, they responded relatively quickly and have maintained a strong position in the market overall.
This is observable in the chart showing the total value of monthly loans on the blue line and the total value of investor loans on the green line. Investor loans are below their peak, but not by much.
To go straight to the dashboard and take a closer look at the data, click here.
Investors, as opposed to owner-occupiers, are routinely blamed for the problem of housing affordability. While there seems to be some merit to the argument that investors – regardless of whether they are domestic or off-shore – fuel the market and force prices up. But it is important to fall well short of blaming those with the capacity to exploit a situation that was constructed by others, to favour them.
Policy prescriptions that support investor participation in the market include the much-discussed negative gearing option. There are different views about the role of negative gearing, but there seems little doubt that it is part of the attraction for investors. In addition, at the public policy level, it appears to be supplying the demand for at least some of the higher than normal supply currently in the market and still to be built.
Signalling that concerns about investor loans are not the be-all and end-all at the RBA, Assistant Governor Luci Ellis told a conference of housing sector researchers that Australia’s dwelling price-to-income ratios were about right compared to similar nations.
Using the chart below, Dr Ellis explained that macro-economic factors such as demographic concentration, different tax deductibility rules for debt and other factors impact upon the dwelling price-to-income ratio. Dr Ellis explained the situation is the same with debt-to-income ratios.
Focussing in on micro-economic considerations, Dr Ellis commented:
“One issue of inequality that generates a lot of public discussion is whether people can purchase their own home. Housing affordability is clearly a concern more generally, because adequate shelter is so important to human welfare. But clearly there is great social interest in how that housing is delivered, who owns it, and who pays for it.”
Considering affordability, Dr Ellis pointed out that the situation is not as dire, including for first home buyers, as some suggest. In widely reported comments she said: “…it’s surprising that as housing prices have risen, the distribution of loan-to-valuation ratios – the converse of the deposit – hasn’t shifted up over time. If anything it has declined in the past few years for which we have data.” The chart below, included in the speech makes the point very clearly.
Dr Ellis points to important factors that could bring LVRs down for first-time home owners. They include rising financial assistance from family members.
On the flip-side of declining LVRs and lower price-to-income ratios, Dr Ellis used data about the number of times renters move residence as a potential indicator of housing inequality. The more moves one makes as a renter, the greater the funds being expended inefficiently on the ‘churn’ in the residential market, rather than assembled into a housing deposit.
That last proposition encourages a view about policy prescriptions that could see renting be more stable and longer term. Interestingly, while that could work for renters seeking to collate the golden deposit, it might work for investor landlords also, reducing the pressures they face from the constant churn of tenants and associated loss of income.
There is more to the role of the investor in the housing market than meets the eye. To review the full speech go to http://www.rba.gov.au/speeches/2017/sp-ag-2017-02-16.html
