Core Logic-RP Data’s Cameron Kusher has published an interesting report on the difficulties facing first home buyers (FHBs) in Sydney and Melbourne, who are increasingly being crowded-out by investors and upgraders:
The first chart highlights the increase in home values across each capital city from December 2008 to April 2016…
Looking at wages growth between December 2008 and March 2016, it shows that nationally and in New South Wales, Victoria and the ACT it has lagged value growth across the capital cities. It should be noted that wages are now growing at the slowest pace in at least 18 years and that the increases highlighted do include strong wage increases in the latter part of the mining boom. Nonetheless, the data highlights that in NSW and Vic wages are increasing at a much slower pace than home values in Sydney and Melbourne are.
The [next] chart highlights how the value of lending to owner occupier first home buyers is now lower than it was in December 2008 across each state and territory. This has occurred despite the increase in home values over the timeframe. While lending to owner occupier first home buyers has fallen, lending to investors and subsequent buyers has increased in most states and territories with substantial rises in NSW and Vic.
…those that do not yet own struggle to compete with investors and upgraders that have been so active in the market and already have significant equity.
Personally, I don’t believe that increased lending to upgraders is an issue for FHBs, since by definition they will sell one property (often a lower-valued dwelling) before buying another. Hence, they have no net impact on the supply of homes available for sale to FHBs.
However, investors are another issue altogether since they compete directly with FHBs (check-out the below negative correlation):
Advertisement
And because the overwhelming majority of investors purchase existing dwellings:
Advertisement
They are directly crowding-out would-be FHBs, forcing them to remain renters.
This is why we should all support Labor’s proposed reforms to negative gearing and the capital gains tax discount. In addition to mitigating Australia’s addiction to housing speculation and housing malinvestment, as well as saving the Budget money, it would give young Australians a greater chance to become home owners, in addition to increasing the stock of homes available for rent.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
