Property investors have “run for the hills” at a record pace, first-home buyers haven’t filled the gap, and new home sales have dropped.
Six months on, the federal budget that was meant to clear the way for young Aussies and drive new builds appears to have fallen short. And now the question remains: is it a policy flop? Or poor timing after five successive rate hikes, stagnant wage growth and shrinking borrowing capacity brewed a perfect storm that left few survivors?
Economists agree it’s a bit of both – with the very buyers the federal budget set out to help now among the hardest hit.
New Australian Bureau of Statistics (ABS) figures show investor loans fell 30.6 per cent over the September quarter – the steepest on record – while first-home buyer loans fell 8.6 per cent to their lowest level since 2022.
It comes just weeks after Domain’s quarterly House Price Report revealed house prices declined across every capital for the first time in 15 years, while building industry figures showed new home sales fell up to 30 per cent.
The exodus comes mere months after the May budget wound back property investor tax incentives in a bid to improve affordability for first-home buyers – abolishing negative gearing for new investors and replacing the previous 50 per cent capital gains tax (CGT) discount with an inflation-linked method.
From August, self-managed super funds (SMSFs) were also banned from borrowing for residential property.
The aim was to ease competition between investors and first-home buyers and push investors towards new builds.
Instead, five hikes this year have taken the cash rate to an 18-year high of 4.85 per cent . Investor loans for established homes have halved since December, according to Ray White, and investor lending for new builds has barely moved.
While the federal government has pointed to the share of new loans going to owner-occupiers, up from 59 per cent before the budget to 68 per cent, as evidence of “real success”, Ray White chief economist Nerida Conisbee says that share has only grown because investor lending fell faster, with about 3700 fewer first-home buyer loans than a year ago.
As for the impact? Falling rental supply, shaken buyer confidence, fewer new builds, and a market that both Conisbee and Domain’s chief economist, Dr Nicola Powell, agreed was just as impenetrable for first-home buyers as it was at the peak.
“Rates are crucial and five this year reduces how much a buyer can borrow and it means your mortgage repayments are actually on par with what they were at the peak,” Powell said.
“The hikes have just completely cut some first-home buyers out and household purchasing power hasn’t been able to keep pace with living costs so even with falling [house] prices a lot of buyers simply don’t qualify [for loans].
“But the big one is the confidence effect. If you’re at an auction and no one is putting their hand up, you don’t want to be that sole tall poppy.”
Penrith-based mortgage broker Brett Sutton said the impact on first home buyers was significant – with singles all but shut out and couples often putting one partner’s entire wage towards mortgage repayments.
“The reality right now is cheaper doesn’t mean easier. Yes, house prices have come back but interest rates have gone up,” he said.
“At the start of the year that house that was $1 million is about $900,000 now, but if you could afford to buy it now you could probably only borrow $850,000.”
“In our office, the reality for a lot of young couples is one of their wages is going to the home loan … but one of the trickiest things is for singles on average incomes.
“I’m working with a guy at the moment who is university-qualified, has a small HECS [sic] debt and a small credit card limit, who’s working in retail and on an average wage.
“But with just his borrowing capacity alone, he’s probably going to be buying a very basic one-bedroom unit in the cheapest areas of Sydney.
“So, the challenge for him is ‘do I buy something that isn’t desirable for me or do I stay out of the market’? The shared equity scheme will assist him in getting in, but we’ve got ourselves into a situation where singles can’t get into the market or own suitable property without government assistance.”
Powell isn’t calling it a “budget gone bad”, but rather policy, interest rates and affordability all “crashing together”.
“If we’d had lower inflation, stable interest rates and better borrowing capacity, investors would have had much more capacity to absorb the [budget] changes … and while some investors would have delayed buying you might find the impacts would simply be an investor retreat in those high price, lower yielding markets,” she said.
“But that didn’t happen and instead they have run for the hills.”
PRD chief economist Dr Diaswati Mardiasmo put the investor exodus at about 60 per cent policy-driven, with the other 40 per cent down to rate hikes, inflation and the fallout from the war overseas. Without the hikes, she estimated investor lending would instead have fallen between 10 and 12 per cent.
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“The investor part, that’s what they [the government] wanted to do, so they’ve ticked the box. But first home buyers filling the gap, that’s the part they did not see happening,” she said.
Conisbee said buyer confidence had played a key role in the current conditions, but argued that if the inverse had occurred and the budget hadn’t wound back investor incentives, prices would still have fallen, but more slowly.
“It was too much, too soon,” she said.
Conisbee said the impacts were already being felt with a “sharp drop in the number of rental properties being listed”.
“There was an argument to the budget that it would make more renters buy but that’s also not occurring. So, for renters it’s not yet showing up in rent [hikes] but it’s only a matter of time,” she said.
“With the broader economy, the big concern is a big drop in transaction volumes … and that flows through.”
Conisbee’s simplest policy fix would be to revisit the SMSF ban.
“It was introduced late and it was a shock,” she said.
On negative gearing, she said, “considering limiting the number of properties would have been a better outcome and a more gentle outcome”.
Mardiasmo believes there’s no “silver bullet” fix, but said easing land taxes and reducing infrastructure charges on new builds would help cut developer costs and, in turn, inflation.
Powell said borrowing capacity needs to improve first and foremost, alongside lower mortgage rates to activate buyers.
“Cost of living pressures need to ease and income growth needs to happen too. We can’t just solely rely on home prices falling. Prices need to become more achievable to wages,” she said.
Sarah Webb Sarah Webb is a journalist with almost 20 years’ experience covering general news, business and real estate in newsrooms across the country. She specialises in property markets, housing trends and urban change.
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