The federal government said it is pleased that higher confidence levels have led to a strong housing market but said that it is “keeping a close eye” on the market.
Assistant Treasurer Michael Sukkar made the comments in response to questions from the media about whether the government is concerned by the Reserve Bank of Australia’s (RBA) warning last week that a rise in debt or an interest rate hike (which could see borrowers struggling to service their debt) could severely impact the financial system.
In its Financial Stability Review for April 2021 released last week, the RBA warned lenders against increased risk-taking in the form of looser lending standards for individual loan assessments, while warning against increased risk-taking even from optimistic borrowers.
It warned that this could result in a deterioration in the quality of new lending, and weaken the resilience of businesses and households, and in turn, the financial system, to future shocks.
Responding to questions about the RBA’s warning, Mr Sukkar noted that about a year ago, economists at major banks were suggesting that the value of house prices could plunge up “30 per cent”, while Master Builders Association and the Housing Industry Association were warning that up to half a million jobs in the residential construction industry were in jeopardy.
“We look at the state of the housing market today… we’ve actually got first home buyers at their highest levels for nearly 15 years,” Mr Sukkar said.
“If you look at the Housing Industry Association affordability indexes which look at house prices, they look at wages, they look at serviceability costs with, most notably, interest rates.
“On average, we’re looking at affordability being at 20-year highs, which is why first home buyers are at such high levels and why owner-occupiers are nearly three-quarters of the market.”
Mr Sukkar said the dominance of owner-occupiers purchasing property – which he said comprised three-quarters of the market – was partly driven by over $220 billion saved by businesses and households during the coronavirus pandemic.
“A lot of that $220 billion is now finding its way into people investing in housing, again one of the reasons why first home buyers are at such a high level,” he said.
“So, there’s multifaceted reasons for why the housing market is where it’s at, but from our perspective, we’re very pleased that confidence levels, and the strength of the economy and the unemployment rate are leading to a strong housing market where first home buyers are at 15-year highs, where owner-occupiers are in a very dominant position in the housing market.”
However, Mr Sukkar said the government is keeping a “very close eye” on the market, adding that “we want as many Australians as is possible to be able to purchase their first home if that’s what they aspire to do”.
Recent figures from the Australian Bureau of Statistics (ABS) showed that new loan commitments for owner-occupier housing dipped in February 2021 (0.4 per cent drop to $28.6 billion in seasonally adjusted terms) for the first time since May 2020, commitment levels remained significantly strong compared with last year.
New loan commitments for housing increased by 48.8 per cent in February 2021 from February 2020, while owner-occupier housing increased by 55.2 per cent.
Other ABS data has shown that residential property prices rose 3.0 per cent in the December 2020 quarter, with prices rising in every capital city.
Recent analysis by Moody’s Investors Service showed that affordability declined on average for five months to February 2021 despite the record-low interest rates, and would continue to worsen throughout 2021 due to rising house prices and lower wages.
According to Moody’s data analysis, new buyers in Sydney required 31.3 per cent of household income to meet loan repayments in February 2021, making it the least affordable city in Australia, followed by Melbourne (27.1 per cent), Adelaide (20.1 per cent), Brisbane (19.9 per cent) and Perth (16.5 per cent).
The CoreLogic national home value index increased by a further 2.8 per cent at the end of March, placing values 5.6 per cent above the previous market peak in October 2017.