First home buyers battling it out with investors but renters still languishing
With signs investors are returning to the property market in search of strong capital growth and high rents, renters could be excused for thinking relief was imminent but they'd be disappointed.
Property investors are gradually showing signs of returning to the real estate market in significant numbers but not in the sort of volumes that will redress the lack of rental properties.
The latest Australian Bureau of Statistics lending statistics show the total value of new housing loans to investors rose 1.2 per cent in February 2024 with the value of new investor loans in February an incredible 21.5 per cent higher compared to a year ago.
The number of loans issued for the purchase and construction of new homes also increased, by 3.6 per cent in February compared to the previous month.
Despite this rise, lending to build and purchase a new home remained 3.6 per cent lower in the three months to February 2024 than at the same time last year.
Real Estate Institute of Australia (REIA) President, Leanne Pilkington, said the latest stats show the response of private investors to higher rents and anticipated cuts in interest rates but said the picture remained bleak for first home buyers and renters.
She said the results do not reflect the true nature of what is happening in the Australian marketplace.
“Housing affordability is at a crisis point as housing supply continues to be obliterated while housing and unit rental and capital prices across the nation are skyrocketing.”
Ms Pilkington added that despite the growing momentum behind build-to-rent (BTR) developments, these initiatives represent a mere 3.0 per cent of the existing rental stock within Australia’s eastern cities and will fall well short of Budget 2023 projections.
REIA’s just released Build-To-Rent Report has delivered mixed results for the outlook of the topical asset class with it currently only accounting for 3,800 completed units and of the 44,139 combined BTR units proposed, only 43 per cent have approval.
Ms Pilkington said overall, the value of new owner-occupier loans was 9.1 per cent higher compared to a year ago, while the value of owner-occupier first home buyer loans was 20.7 per cent higher over the same period.
Upgraders and downsizers were the least active in the market in February, rising by only 0.4 per cent over the month, with $11.95 billion in loans settled.
On the contrary, lending to investors over the same period rose by 1.2 per cent with $9.53 billion in loans written in February. The value of investment lending was remarkably higher than the same time last year and was up 21.5 per cent annually.
The value of loans to first home buyers saw the greatest monthly increase, rising by 4.8 per cent over the month to $4.93 billion in February. First home buyers are showing a willingness to battle it out with investors, with activity for first-time buyers up 20.7 per cent compared to February 2023.
Canstar’s finance expert, Steve Mickenbecker said the modest increase in new lending in February, after downturns in December and January, holds out some promise that the conservative stance of borrowers is mellowing as the risk of further Reserve Bank rate hikes abates
“Rising prices drive activity from investors and first home buyers, the former looking to maximise capital growth and the latter to establish a foothold in home ownership while they can, and lending to both customer segments is up by in excess of 20 per cent for the year.”
HIA Chief Economist Tim Reardon described the downturn in lending for home building as deeper and more sustained than any other period observed in the past 20 years.
“This low level of lending is consistent with other leading indicators of home building activity, such as new home sales and building approvals, which continue to signal an ongoing slowing in the volume of homes commencing construction.
“The rise in the cash rate is the primary cause of this poor result in new home lending, while higher interest rates are compounding the impact of the rise in the cost of construction caused by elevated land, labour and material prices.
“This is further exacerbated by macroprudential rules that remain overly restrictive,” he said.
The slowing in lending is most evident in the most populous states, New South Wales and Victoria. Since interest rates were raised in May 2022, new home lending in these two states has fallen by more than one-third.
“The slowing in home building activity appears set to continue and will drag on economic growth through the rest of this year,” Mr Reardon said.
In original terms, the total number of loans issued in the three months to February 2024 for the construction or purchase of new homes rose in Western Australia by 28.2 per cent compared to the previous year, followed by South Australia (+6.7 per cent) and Queensland (+0.5 per cent). The other jurisdictions saw declines in new home lending compared to the previous year, led by the Northern Territory (-34.3 per cent), followed by Tasmania (-31.8 per cent), the Australian Capital Territory (-27.9 per cent), New South Wales (-12.4 per cent), and Victoria (-5.9 per cent).
Rental conditions improve slightly
Rental conditions improved slightly in March, yet vacancy rates remain close to historic lows, according to the latest PropTrack Market Insight Report released Tuesday (8 April).
The tentative return of investors to the market has helped to deliver a modest rise in the number of properties available for rent in March.
The national rental vacancy rate rose 0.04 percentage points (ppt) to sit at 1.11 per cent in March. However, has fallen 0.14 ppt over the past 12 months and is 55 per cent below pre-pandemic levels.
Anne Flaherty, Economist, PropTrack, said that despite the slight improvement in March, renters should expect little respite given vacancy rates remain close to historic lows in most markets.
“Vacancy across Australia’s combined capital cities was at the second lowest level on record in March, with just 1.08 per cent of rental properties sitting vacant, while availability was slightly better in the regions, with 1.17 per cent of rentals vacant.”
Adelaide has overtaken Perth to become the most difficult capital city in which to find a rental property, with vacancy unchanged over the month.
Adelaide’s vacancy rate has now spent more time at the sub-1 per cent level than any other capital city.
“High levels of migration, primarily focused across Australia’s capital cities, have driven increased demand for rentals.
“Over the past four years, the number of vacant homes has fallen by 58 per cent across the capital cities and by 47 per cent in regional areas.”
