That ratio is now running at about 45 to 50 per cent depending on how you measure it, but it is now back to the highs that were seen in Australia around 2003 and 2004, which is often seen as the last time we had a real property boom in this country.
It did concern the RBA at the time immensely because the heavy investor involvement suggested there was a speculative element to the rise in property prices. In other words, prices were going up because people believed that they would go up further and investors were seeking to jump on the bandwagon and get the capital gains.
So I think those concerns are now there this time around. They may not be as great as they were back then because even though the ratio is the same, we haven’t had quite the same surge in house prices. Back then we saw five consecutive years of double-digit gains. It has been less than that this time around.
Secondly, investor housing credit is growing at around nine per cent on an annual basis; this is the stock of investor housing credit, which is less than a third of what it was in 2003/2004 when it peaked around 30 per cent. That does allay those fears a bit.
You can make an argument that some of that investor financing is actually first home buyers. First home buyer borrowing has gone to a record low as a share of less than 10 per cent. If you’ve got 100 loans, about 45 or so are going to investors at the moment. About eight are going to first home buyers and the rest are going to non-first home owner-occupiers.
It may well be that the first home buyer figure reflects a number of things. The first is that many state governments have tightened up the eligibility for first home buyer grants. In many states you have to buy a new dwelling to get the grant. As the amount of money granted to a first home buyer is small, it is quite possible that they have decided they won’t bother with the grant and just go in as an investor. As a result there may be a degree of exaggeration in the investor number – it may be first home buyers trying to get in via another route. This suggests that it may be a little less frothier than it looks.
My feeling is that while it is a concern, it might not be at the level that it was at a decade ago. Consumer confidence was higher back then, unemployment was going in the right direction and now it’s going in the wrong direction. You weren’t constantly bombarded by headlines like we had a few weeks ago in the Australian Financial Review about the economy being in the “danger zone”. You’ve got all these things going on.
Those extremely negative headlines weren’t around back then; in fact back then the headlines were a lot more positive, as the economy was on the brink of a mining boom. When you put all of those factors together it suggests that while there is reason for caution and the Reserve Bank doesn’t want to see the investor finance share rise, it’s not quite as dangerous as it was a decade ago.