The housing market is beginning to cool as new dwellings going on sale help moderate prices, despite investors representing 40% of all new home loans, the federal Treasury has said.
On Friday parliamentarians quizzed Treasury officials about housing affordability.
Recent data showed that the housing market had cooled off, a department macroeconomics expert, Brenton Goldsworthy, said.
“In August prices moderated,” he said. “Part of the reason that the heat might be coming off the market is that increased supply is coming online.”
The long lead time in building meant that the response to the housing affordability issue was “sluggish”, but building approvals were now “at record levels”.
He was “confident” new houses would spring up, which would “have a moderating influence on house price growth”.
Treasury analysis refers to nationwide trends, but recently released statistics by the Australian Bureau of Statistics show that house prices in Sydney have risen by a whopping 19%, and by more than 4% in Melbourne.
Other capital cities showed a more moderate increase or – in the case of Darwin and Perth – a decrease.
In June, the then treasurer, Joe Hockey, shrugged off suggestions from the Treasury secretary, John Fraser, that parts of Sydney and Melbourne were “unequivocally” in a housing bubble because of record low interest rates.
“The best way to respond to elevated house prices is to increase supply,” Hockey told the ABC.
Hockey’s successor, Scott Morrison, said on Friday that the commonwealth was working with state governments to ensure that more land was freed up for housing.
“Working with the states is always critical to ensure we don’t get the pent-up pressures in the system,” he said. “We have to address those supply issues and we have to work together to do it and I think that’s one of the concrete and constructive things we can do.”
Structural tax issues made it “easier to buy a rental property than to buy your own home”, the Liberal backbencher John Alexander argued.
Two out of five new home loans were for investors, Treasury said.
“The 40% figure ... is a share of new loans,” Goldsworthy said. “If we look at through the year growth rates in the value of loans going to investors, that’s fallen to about 16.5% ... which is well off its recent peaks.”
Foreign investment was not included in the 40% statistic, as it was drawn from new loans in Australia. Most foreign investors did not seek loans from Australian institutions, Goldsworthy said. Foreign investment was “outside” the home loan “pie”.
But Alexander was scathing. “It’s impinging on the opportunities of Australians to buy their own homes,” the Sydney MP said. “If the home has been bought by a foreign investor then it hasn’t been bought by a young family.”
He expressed concern about young people struggling to get into the market because of higher prices driven by investment, and the resulting requirement for larger deposits.
The opposition leader, Bill Shorten, shared that concern. “There is also a challenge on the deposit side in terms of how do young people get the amount of money together to be able to afford a deposit,” he said on Friday. “These are some of the issues we’re looking at.”
John Swieringa, from Treasury, said younger people were owning homes at a much lower rate, but warned against reading too much into that.
“The youngest age cohort, particularly the 24- to 35-year-olds, are a declining proportion of home owners,” he told the inquiry. “But they are a declining proportion of the population overall, so it’s a bit hard to disentangle those two things.”
Marty Robinson, fromTreasury’s social policy division, highlighted past research that showed demographic trends like young people marrying and having children later in life have had an impact on home ownership.
“There was a strong link with home ownership and family formation,” Robinson told the committee.
Swieringa pointed to a number of factors, such as financial deregulation and low interest rates, as a reason for the house price to income ratio going up, compared with previous decades.
Alexander questioned the impact that higher interest rates would have on the market.
“The concern is that has driven prices up very rapidly. When interest rates return, will there be an equally rapid decline?” he asked.
Treasury representatives said the department did not forecast housing prices, but acknowledged they have skyrocketed in some areas.
“In recent years, it would seem reasonable to assume that the pace of prices in Sydney and Melbourne have outpaced income growth over that short period,” Goldsworthy said. “Over a longer horizon, it is much less clear.”
