Number of first-home buyers hits record low as investors keep demand strong

Just 12% of Australians given home loans are now first-home buyers, according to Australian Bureau of Statistics Housing Finance figures released yesterday.

Despite this, the total value of housing loans rose 2% in November, adding to a year of very strong growth that saw lenders lending 25% more funds for housing than they did in November 2012.

Tasmania was the standout with a 2.4% overall increase in loans from a low base, while the ACT dropped the most, by 1.4%.

Peter Bushby, president of the Real Estate Institute of Australia, the national body representing real estate agents, says the record low number of first-home buyers should prompt government to rethink how they support young people to move into housing.

But he says whether or not young people buy houses in the same numbers they historically have, investors will certainly pick up the slack in keeping demand strong.

“On demand, I don’t think it’ll have a significant effect,” he tells SmartCompany. “Investors will fill the void. Their interest is pretty strong at the moment. In Sydney and Melbourne, it was very strong through 2013, and in some key areas, you also have very strong international interest from Asian buyers and the like, which is driving the top end.”

“What might happen is you have a shift in who owns property, with far more being owned by investors. There’ll be less young people entering the property market, and more people renting.”

Historically, Bushby says, Australia has had one of the highest rates of home ownership in the world, with the long-term average seeing 20% of housing loans being made to first-home buyers.

“That’s declined over a period of time. The fact is we’re not enabling first-home buyers to buy established houses to the extent that is needed to get to that historical mark. The drop to 12% is quite alarming in that sense.”

Bushby gives a number of reasons why first-home buyers could be shunning the housing market, including the removal of the first home owners grant and issues with job security. However, he says the decline is stark, because it’s happening at a time of the lowest interest rates in recent memory, and increased home loan lending, but not to first-home buyers.

In October last year, Jane-Frances Kelly of the Grattan Institute called for a rethink of the negative gearing regime, saying that it made houses more expensive, thus disadvantaging those outside the housing market from entering it, without incentivising builders to increase the number of houses built. Removing negative gearing would make housing more affordable for first-home buyers, she said.

However, Busby says the Real Estate Institute of Australia supports negative gearing.

“We firmly believe that negative gearing needs to be maintained,” he says. “Government cannot provide welfare housing without private sector, and they achieve that through negative gearing. It helps mum and dad investors to own an investment property or two, which they can rent out to people who don’t want to buy.”