HIA thinks first home buyers will resurge soon

by AB15 Apr 2014
The Housing Industry Association believes fears over first home buyers being squeezed out by investors are unfounded, and they will begin to re-enter the market soon.

Instead, first home buyer (FHB) rates are explained by a complex set of factors, the HIA Economics Group said in its report First Home Buyers: The Bigger Picture.

ABS Housing Finance figures show the FHB share of the owner occupier market reached a low of 12.3% during November 2013. This was the lowest share recorded since compilation of the series began in July 1991, and is based on mortgage lending volumes.

In 2008 to 2009, the then federal government’s stimulus programme provided strong incentives for FHB purchase and so FHB activity surged. The peak occurred during the year to November 2009, with about 190,000 FHB mortgages being issued to owner occupiers. The FHB share of the owner occupier market peaked at 29% during this period.

In the year to January 2014, about 82,500 loans to FHBs were issued, representing a 13.6% share of the owner occupier market during this period. In these twelve months, the total value of FHB loans was $24.2 billion.

HIA said the factors which are pushing FHB out of the market are varied and is certainly not limited to investors squeezing them out of their price range.

These include drag-forward effects, the age structure of the population, labour market weaknesses, non-mortgage financed FHB purchases, and more caution by FHBs in terms of entering the recovering market.

HIA concluded the low share of FHBs in the owner occupier mortgage market is a “temporary phenomenon” which reflects a unique mix of factors.

And HIA are confident this sector will increase soon, for reasons such as the share of population in the 25 to 35 year age group is starting to increase again, FHB confidence will grow as the housing market recovery becomes more consolidated, and strong price growth will lead to the accumulation of home equity – allowing increased parental support for home purchase by FHBs.

Policy measures aimed at dissuading investor participation must be avoided, as it could hurt building activity and lead to deteriorating rental affordability, HIA said.

However, economist Leith van Onselen believes the HIA report is propaganda which “appears to be yet another thinly veiled attempt to thwart reforms to negative gearing”.

He said on his blog that the ABS housing finance data clearly shows FHBs are being crowded out of the market by investors, pointing to Reserve Bank of Australia data that shows that almost 95% of investors buy pre-existing dwellings, and the proportion of investors buying new dwellings has fallen since negative gearing was re-introduced in September 1987.

“What is particularly odd in all this is why the HIA doesn’t support targeting negative gearing at new builds? After all, such a policy would stimulate construction and benefit its homebuilder members. I can only speculate that the HIA cares more about protecting the value of its member’s land banks, rather than actually boosting construction,” he said.