Yesterday’s housing finance data for August, released by the Australian Bureau of Statistics (ABS), threw up some interesting results for New South Wales.
As we know, Sydney house prices are booming, with dwelling values increasing by nearly 10% over the past 12 months and by over 11% since the start of the year, according to RP Data’s daily home values index. The Sydney auction market is also on fire, with clearance rates in excess of 80% recorded over recent months.
Yet, despite the strong state of the Sydney housing market, the number of owner-occupied housing finance commitments (excluding refinancings) in New South Wales was essentially flat in the year to August 2013, compared with the previous corresponding period, although they have trended-up over the past six months (see next chart).
With owner-occupied demand subdued, the strong growth in Sydney home values is, therefore, explained by a surge in investor commitments. As shown by the next chart from Westpac, investor mortgage demand in New South Wales has literally exploded, increasing by around 50% over the past 18 months:
The explosion of investors also helps to explain why New South Wales first home buyer demand (FHB) remains in the gutter, with investors crowding-out this cohort (see next chart).
It’s difficult not to feel sick in the stomach about the situation in Sydney, where FHBs searching for a place to call home are being shut-out by domestic and local speculators.
The solution, however, is not to throw further subsidies at FHBs, but rather fundamental reform of the supply-side of the housing market, in addition to reducing tax incentives for property investment into pre-existing dwellings (e.g. quarantining rental losses so that they can only be offset against rental income, not unrelated wage/salary income), and tightening/enforcing rules on foreign ownership of Australian residential property.
