Over recent years, the level of investor participation in the national housing market has hit historic high levels and at the same time, housing finance commitments to owner occupier first time buyers has shrunk. As an example, January 2017 housing finance data shows that based on the total value of housing finance commitments, a record-low 7.1% of commitments were to owner occupier first home buyers while 39.0% of the value of all commitments were to investors.

The above chart looks at the proportion of the total value of housing finance commitments going to owner occupier first home buyers and investors nationally. As the level of lending to investors has increased over recent years it has done so at the expense of owner occupier first home buyers. Except for briefly in 1992, investors have consistently outweighed owner occupier first home buyers in terms of housing finance demand. The only time first home buyer lending has got close to that of investors was in 2008 and 2009 during the financial crisis. At that time, investors were fearful and first home buyers were receiving substantial stimulus from the Federal Government which led to heightened housing demand to those that don’t already own property.

It is a similar story surrounding first home buyer activity being much lower than that of investors across the individual states and territories. Furthermore, in 2008 and 2009 the combination of stimulus and investor caution resulted in a lift of first home buyer activity at the expense of investors. The data here has been paired between housing finance and lending finance data. We have multiplied the average first home buyer loan size by their number of loans to determine the value of first home buyer loans and taken the investor loan data from lending finance. Note that the following figures include refinances.

In January 2017, an historic low 3.4% of all housing finance commitments in New South Wales were to owner occupier first home buyers compared to 46.9% of total lending to investors.  The 46.9% of housing finance commitments to investors was their highest level since July 2015.

Victoria investors accounted for 37.5% of the total value of housing finance commitments in January 2017 compared to 7.7% of the total value to owner occupier first home buyers.  The level of activity from first home buyers is currently at an historic low level while investor participation is sitting at levels not seen since July 2015.

Owner occupier first home buyers are more active in Queensland than they are in New South Wales or Victoria however, they still only accounted for 10.8% of the value of housing commitments in January 2017 compared to investors accounting for 31.6%.  Housing affordability has not deteriorated in Queensland to the extent it has in New South Wales and Victoria however, first home buyers continue to be well and truly outnumbered by investors.

In January 2017, owner occupier first home buyers in South Australia accounted for 6.9% of the value of housing finance commitments compared to investors accounting for 30.1%.  

Owner occupier first home buyers in Western Australia accounted for 14.3% of the total value of housing finance commitments in January 2017 compared to investors that accounted for 27.3%.  Dwelling values are falling across most regions of the state and investor borrowing still far outweighs first home buyers. You would think that falling prices would scare investors away from purchasing and create an opportunity for first home buyers but that hasn’t really occurred in Western Australia over the past few years.

In January 2017, owner occupier first home buyers in Tasmania accounted for 10.3% of total housing finance commitments compared to investors that accounted for 27.6%.  The proportion of lending to investors in Tasmania is at its highest level since April 2015.

Northern Territory investors accounted for 38.8% of the value of all housing finance commitments in January 2017 compared to owner occupier first home buyers who accounted for 8.3%. Despite the fact that dwelling values are falling across most of the Northern Territory, fist home buyer volumes remain low and investors remain quite active. This is probably due to the fact that in Darwin in particular, the population tends to be more transient than in other parts of the country.

Across the Australian Capital Territory in January 2017, 9.1% of the total value of housing finance commitments was to owner occupier first home buyers compared to 35.5% to investors.

The national and individual state and territory data shows that historically the only way to substantially boost first home buyer participation has been at the expense of investors, as occurred in 2008/09. At the time this didn’t occur through a policy specifically targeted at slowing investor demand it happened more so organically due to significant first home buyer stimulus and investor fears at the time. Keep in mind that these policy choices also led to, in certain areas, a substantial increase in dwelling values.

Including in 2008/09, investors have consistently outweighed owner occupier first home buyers in terms of new mortgage borrowing. This shouldn’t really surprise anyone given that most investors already have a residential property asset and many of which use at least a portion of the equity in that asset to fund the investment. First home buyers don’t have the existing foothold in the housing market and are always going to find it difficult to compete with borrowers that already have assets and equity.

Unfortunately the ABS does not publish data on the number of loans to investors so we can’t see a true picture of loans written rather just the value lent. Keep I mind that investors that already own homes generally have the ability to borrow more than first home buyers and in-turn may typically take out larger loans than first home buyers.

Based on the data is seems that the way to get more first home buyers entering into the market is to do it at the expense of investors. If you can increase purchasing by first home buyers there will be, at least initially, less demand for rental accommodation. Longer-term though, the population grows and people age so deterring investment may have greater repercussions for the housing market. Keep in mind though that heightened housing market activity from first home buyers that don’t own housing assets and have no housing equity may actually create more instability in the housing market.

There is no easy fix to encourage higher levels of housing market participation from first home buyers but the data indicates a heightened level of activity from this market segment is most likely to occur via a reduction in demand from the investor segment. While people that don’t already own homes may see this as a great solution we should be cautious as it may have larger long-term effects on housing supply and housing market stability. I don’t believe that the balance between first home buyers and investors is currently right and we should look at ways to cool some of the market’s current investment exuberance but we should also be cautious about encouraging excess demand from first home buyers who may find it more difficult to repay mortgages once interest rates start to increase.

See also:

Victorian government steps in to help first-home buyers

Housing affordability on governments' agenda

Rates on hold, but housing affordability remains 'hotly debated'