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The executive chairman of major aggregation group Yellow Brick Road (YBR), Mark Bouris, has said that the flow of new loans at the group is “close to zero”, with refinancing dominating the business as Australia records a historic quarterly contraction in housing finance.
Speaking at the launch of the Get Ahead Campaign (a campaign pushing back against the government’s investor tax reforms), set up by fund manager Geoff Wilson in Sydney on 11 November, Bouris said mortgages written through the group had fallen 28 per cent since March, warning that Australia faces its worst housing downturn unless Treasurer Jim Chalmers reverses the government’s property tax changes.
His comments followed Australian Bureau of Statistics (ABS) figures released on Wednesday (11 November), which showed that new dwelling loan commitments fell 15 per cent to 111,878 in the September quarter, down 21.4 per cent annually.
Their value declined 15.5 per cent to $81.2 billion, the largest quarterly fall since that series began in September 2002.
Bouris said the headline figures significantly understated the deterioration in fresh borrowing.
“The flow of new loans is actually close to zero,” he said.
He said refinancing was sustaining activity while purchase lending had dried up and predicted a prolonged downturn and lasting damage to household wealth.
“It’s mostly just refinancing; any new lending virtually doesn’t exist. This will be the longest downturn in our history. I think Jim Chalmers has put himself in a trap,” he said.
“Unless he walks the tax changes back like [former Labor Treasurer Paul] Keating did in the 1980s, then we’re going to have a serious structural hit to people’s wealth.”
Refinancing dominates as investors pull back
Bouris said investors represented 32 per cent of YBR’s borrowers in February and March, while 38 per cent were purchasing homes to occupy.
He added that those proportions had since dropped to just 3 per cent each, with the remainder refinancing existing loans as interest rates increased.
“This is the worst period of reduction in mortgages in Australia’s economic history, or since records (were) taken. Pretty much the investor market has disappeared,” he said.
Nationally, investor commitments fell 30.6 per cent to 35,301 during the quarter, while their value dropped 32.3 per cent to $24.7 billion.
Owner-occupier loan numbers fell 5.3 per cent and were 9.8 per cent below a year earlier.
First home buyer retreat challenges reform claims
Property Investment Professionals of Australia chair Cate Bakos argued that the figures challenged suggestions that higher interest rates alone explained the investor retreat.
“It’s interesting that the ABS did attribute it to the policy changes, they’re not letting the government get away with saying it’s all about rising interest rates,” Bakos said.
Bakos added the first home buyer decline was particularly disappointing given Labor’s promise that restricting investor tax concessions would improve their opportunities.
“Falling property prices are scaring them (first home buyers) and there’s a lack of ability to borrow,” she said.
“A lot of first home buyers are watching the data and they’re nervous. It’s just made it hard for absolutely everyone – I can’t spot any winners in this budget.”
Owner-occupier first home buyer loan numbers fell 8.6 per cent quarterly and 12.3 per cent annually.
However, Treasurer Chalmers argued that the investor retreat demonstrated reduced competition for aspiring home owners and that the reforms’ effectiveness should be assessed over a longer period.
“Because of our reforms, first home buyers will have to compete less with established investors for limited existing housing stock, and we’re starting to see that in this data,” Treasurer Chalmers said.
“Our tax reforms are all about helping more first home buyers into the housing market, and we expect to see those benefits play out over years, not months.”
Chalmers has also pointed to changes in lending composition as an encouraging development.
“It was encouraging to see in today’s figures that investors are shifting towards new builds and the share of lending going to first home buyers is growing,” he said.
However, investor commitments for purchasing and constructing new dwellings fell 8.7 per cent, indicating that new-build activity also weakened.
Opposition housing spokesman Andrew Bragg argued that the changes were hurting both existing participants and younger Australians seeking to enter the market.
“There isn’t a single Australian who wins from these taxes. The losers include renters, home owners, first home buyers and investors. They are particularly unfair for younger Australians as we are seeing in the ABS data showing an 8 per cent drop in first home loans,” he said.
Construction groups warn of deeper supply pressures
Housing industry representatives meanwhile warned that discouraging investors could undermine efforts to increase supply.
Housing Industry Association senior economist Maurice Tapang argued that investment played an essential role in delivering rental housing and limiting market downturns.
“Investors are crucial to addressing the housing undersupply and moderating downward cycles in the market,” he said.
“They add to rental supply and net dwelling stock, while adding nothing to housing demand. Policies that increase the cost or risk of investing in housing do not resolve that shortage but rather make it worse.”
Master Builders Australia chief executive Denita Wawn told the National Press Club on Wednesday that the lending figures were “only the start”, warning housing pressures would intensify.
Property Council of Australia chief executive Mike Zorbas questioned how the government could meet its housing ambitions while discouraging private investment.
“Tell ’em they’re dreaming. Who does the Albanese government think is going to finance new home construction, including the rental homes Australians need?” Zorbas said.
“Is the government planning to step in and underwrite projects that cannot secure finance? A foolish political deal has already seen SMSF (self-managed superannuation fund) investors in rental homes get the boot, and now the rest of the market is suffering.”
[Related: Brokers warn of dwindling borrower savings buffers]
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