First home buyer demand declining as non-first home buyer loans increase: QBE Housing outlook
First home buyer demands have remain unchanged compared to two years ago while investor demands have declined by 20 percent, according to QBE's latest housing outlook report.
This is illustrated in the change in moving annual turnover of residential loans to first home buyers, non–first home buyers (i.e. upgraders and downsizers, as illustrated in chart 4 which include all purchases made for owner occupation and where the buyer has previously owned another dwelling) and investors.
The chart represents trends for Australia, which masks some differences across the states, as outlined later in this report.
First home buyer demand has been declining since the end of calendar 2014. In 2015/16 the number of first home buyer loans was 1.8% below the year prior. Loans to non–first home buyers rose by 7.1% in 2015/16, after recording an annual 0.9% rise in 2014/15.
Growth in loans to investors peaked in 2014 and has steadily slowed before recording a decline in 2015/16. Monthly loans to investors have been below the same month a year earlier since August 2015, which has corresponded with the timing of tightening bank lending policy toward investors. The total annual decline in the value of loans to investors in 2015/16 was 16.8%.
First home buyer demand is important because it creates demand for entry–level properties, facilitating broader demand by encouraging current occupiers to upgrade through the value chain. As a result, incentives have often been put in place to promote first home buyer demand during times of market weakness.
Table 3 shows existing state and federal government incentives offered to first home buyers. It refers to grants available specifically to first home buyers and not broader grants and incentives first home buyers can also access. Where stamp duty concessions are offered, the maximum concession is indicated. It should be noted there are some purchase price limits for grant eligibility which vary by state.
Over the past five years there have been progressive changes in first home buyer incentives across all states to favour purchasers of new homes over existing homes. The long–term impact will be a shift of first home buyer demand that would have otherwise been for established homes into the new home market, thereby adding to supply.
The short–term impacts on the market as a result of the progressive removal of incentives for the purchase of established dwellings are:
• Future first home buyer demand was brought forward to take advantage of the grants before they expire, leaving a vacuum of first home buyers in the established market immediately afterwards.
• A delay in the next round of first home buyers who then have to accumulate a larger deposit to compensate for the lack of financial assistance. In periods where prices are rising, this delay could take longer as the deposit hurdle progressively increases.
With first home owner demand being fixed (i.e. households are first home buyers only once), incentives do not create or diminish demand but rather serve to shift existing demand through time. Once the impacts of the changes to incentives are worked through, first home buyer demand should return to long–term averages.
This is likely to be the case in the coming years with first home buyer incentives now being relatively stable.
Tasmania and South Australia removed the first home buyer incentives for existing dwellings in July 2014 and have accordingly shown higher first home buyer activity in 2015/16 as they progressively recover to long–term levels.
Victoria experienced 5.6% growth in first home buyer loans in 2015/16, with the 9.3% year–on–year growth in June quarter 2016 suggesting that first home buyer activity is strengthening.
In Queensland first home buyer loans have been stable in recent years with little to no change in the number of loans over 2014/15 and 2015/16.
New South Wales has been similarly flat, recording recent marginal declines in loans, but the average annual number of loans in New South Wales in the five years to 2015/16 is down 32% on the average over the six years to 2010/11.
Western Australia experienced a decline in first home buyer loans in 2015/16, caused by a deteriorating economy, and the fact that first home buyer demand had held up strongly between 2011/12 and 2014/15.
The Northern Territory removed the incentives for existing dwellings in January 2015 and accordingly first home buyer activity was significantly lower in 2015/16, although the pace of decline was beginning to slow by June quarter 2016.
The Australian Capital Territory has also shown declining numbers of loans to first home buyers after a peak in activity in 2014/15.
Australian Bureau of Statistics (ABS) data on loans to first home buyers are derived from returns submitted by financial institutions to APRA at the time of the loan approval.
A first home buyer is defined as “a borrower entering the home ownership market for the first time”. The definition includes all first home buyers obtaining a loan (and not just those eligible for grants) but excludes first home buyers who are investors as the data relates to loans for owner occupied properties.
There is some evidence to suggest that an increasing percentage of first home buyers, particularly in the higher priced cities of Sydney and Melbourne, are purchasing an investment property as their first home as a stepping stone into the market.
