Housing Finance: Owner Occupiers vs Investors

The latest housing finance figures show that loans for the purpose of investing in the residential housing market continued to skyrocket to the end of 2014. Loans outstanding for investment in the housing market rose six per cent (seasonally adjusted) from November to December 2014. Loans outstanding for owner-occupiers rose 3.8 per cent over the month.

Loans outstanding to households, by owner occupier vs investor

Over the past ten years, credit has grown at roughly the same rate for both owner-occupiers and investors (274 per cent and 263 per cent, respectively).

Growth in loans outstanding to households, by owner occupier vs investor, past 10 years

However, the last two yeasr have seen rapid growth in investments.

Growth in loans outstanding to households, by owner occupier vs investor, past three years

As these trends continue, there is increasing risk that Australians are building up unsustainable levels of private debt to inflate a housing bubble. A quick look at the latest indices shows that house prices are inflating rapidly, around 6.8 per cent over the past year. Melbourne (4.5 per cent) and Brisbane (5.3 per cent) have had high growth, but Sydney has led the pack with annual price growth of a whopping 12.2 per cent.

House price index for capital cities, change in last quarter and previous three quarters

There are measures that both the federal government and the RBA could be taking to address this, chief among them, in our opinion, is removing unnecessary tax concessions on housing investment (that is, negative gearing).