By Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
Money is flowing into new housing at a near-record pace, despite a clampdown on lending to investors.
That clampdown, announced by Australian Prudential Regulation Authority in December 2014, does not apply to foreign investors, who remain a key ingredient in the recipe for a strong housing market.
Figures from the Australian Bureau of Statistics on Monday showed approvals for housing loans, aside from refinancing of existing loans, rose by four per cent in February.
The value of those loans, $25.74 billion in seasonally adjusted terms from $24.80 billion in January, was down by six per cent from the peak of $27.32 billion set six months earlier.
But it was still consistent with the view that demand for housing is flattening out rather than slumping.
The value of loans for new and to-be-built housing is only about 15 per cent of the total, but still vital for the housing industry’s prospects.
That component of loan approvals fell by one per cent in February, but at $3.94 billion it was still up by 12 per cent from a year ago and higher than at any time before October last year.
That’s more evidence that it’s a slowdown rather than a slump.
And it suggests that, with the pipeline of work still to be done from the earlier surge in finance, housing construction should add – if only modestly – to economic growth in 2016.
Of the three per cent rise in the GDP through 2015, housing construction and renovation contributed half a percentage point, or one sixth of the total expansion, despite being only one twentieth of the economy.
And it was not just Australian borrowers who fuelled the upsurge in building.
The Foreign Investment Review Board’s annual report on Friday showed the scale of the flood of money coming into the market from abroad.
The total value of residential investment approved by the FIRB in 2012/13 was $17.16 billion, but by 2014/15 that had risen to $60.75 billion, equal to an extra one and half months of housing finance approvals to Australian residents.
Within that total, investment approved for the development of residential property rose from $10.98 billion to $49.25 billion.
That additional $38.45 billion is equivalent to about 10 months of housing finance loans earmarked for new housing.
That does not mean nearly half the money flowing into new housing is coming from abroad – there are other avenues of funding than the single-purpose loans identified by the ABS.
Even so, it does mean that the housing market, and the outlook for home-building – is heavily dependent on the whims of foreign investors and their access to cash in their home countries.
In a separate report on Monday, ratings agency Moody’s Investors Service said that the more rapid rise in prices compared with rents meant risks for investors in residential property had increased.
“The deteriorating affordability of servicing investment properties makes residential property investors more vulnerable to risks such as loss of income, interest rate increases, vacancies or rent reductions, and therefore increases their probability of default,” the report said.