Record year for home loans – economist reveals why

Australia’s housing boom continues and the latest figures show it is owner occupiers that are dominating the market, pushed along by household savings due to the pandemic.

The Australian Bureau of Statistics has just released the Lending to Households and Businesses data for December 2021, which provides statistics on housing finance commitments.

“Owner occupiers bounced back at the end of 2021 to produce the biggest year of home loans on record,” said Housing Industry Association economist Tom Devitt (pictured).

“The total value of housing loans issued in 2021 reached almost $370 billion, up by 51% on the previous year and the strongest year since records began in 2002. This was driven by owner occupiers, accounting for over $260 billion of the total in 2021, up by 43% on the previous year.”

The boom in renovations also looks set to continue with lending for renovations of $5.4 billion in 2021, almost double the level in 2020.

Devitt said initially the resurgence in the housing industry was driven by the HomeBuilder Grant, first announced in mid-2020, “which made a big difference in getting things going”.

“But we’re now a good 10 or 11 months past that and the fact that the pandemic has forced so many Australians to spend so much more time at home either locked down or working from home, means they’ve started looking for more space and more amenities and that’s pushed a lot of people out into the regions and outer metropolitan suburbs – that trend is continuing well after the end of HomeBuilder,” he explained.

Devitt said COVID meant people were unable to spend money on travel, dining out and entertainment, so they were buying and renovating homes instead.

“People have been able to save a tremendous amount – I believe the figure is more than $200 billion more than they would normally save over the course of the pandemic - they’ve been able to add to their balance sheets,” he said.

“Household balance sheets, even with the debt required to buy these houses, are by international comparisons still very, very healthy. The amount of assets people have, not just in housing but in the financial markets, puts us in quite a healthy position despite what can sometimes be some scary headline figures.”

Devitt said while loans to first home buyers had fallen in recent months, they remained much more active in the market than before the pandemic.

“First home buyers accounted for $74 billion worth of housing loans in 2021, up by 30.3% on the previous year,” he said.

Early on during the HomeBuilder surge and the First Home Loan Deposit Scheme, first home buyers were the driving force in the market.

“It’s good that they’ve been able to enter the market in such significant numbers but it’s also a bit sad that first home buyers often have to wait until there’s some kind of government stimulus like this before they can get really get in the market,” Devitt said.

Devitt said since the GFC lending requirements have been progressively tightened first home buyers have been impacted the most and “unfortunately get squeezed out of the market”.

This included when APRA increased the serviceability ratio for loans from 2.5% to 3.% last year, a decision which first home buyers would feel most heavily.

“While investor loans are another growing sector, they remain a relatively small share of the market, said Devitt.

“The volume of investor loans is still increasing, including in the latest data, and that has actually raised a lot of eyebrows and got a lot of attention but the important thing to remember as a share of the entire markets, investors are quite small.

“Investors accounted for $106 billion worth of housing loans in 2021, up by 75.1% on the previous year. This still represents 28% of the total market, compared to more than 40% in 2015.”

Devitt said all of the pressures on the property market are playing their way out.

“We do think this year the limiting factor for builders will still be the availability of land, labour materials – demand is still relatively strong,” he said.

“When the Reserve Bank does eventually decide to increase interest rates, we do believe that will be the point when this boom officially ends.”

The HIA believes the RBA will raise the cash rate early to mid-2023.

“Most of the price pressures we’ve seen so far are very contained in a small number of sectors – fuel, house building costs, and most recently deferred domestic holidays and accommodation,” he said.