The new versus old debate – Matusik

THE two housing finance releases from the ABS earlier this week speak volumes.

The first clear trend is that borrowing for established property is at an all time high, whilst finance for new construction is languishing.

The high price of building new stock is keeping most owner-residents and investors focused on the existing resale market. For the year ending March this year, $166 billion was loaned for established property (excluding refinancing) across Australia against just $27 billion for new housing.

Owner-residents (including refinancing) borrowed $167 billion or 72% of the total money lent for residential housing last year.

The second trend is that the amount borrowed has increased by 10% for both owner-residents and investors. This increase -especially given that wage growth is already at 4.1% per annum and is expected to grow faster over the next 12 months -may see an interest rate rise before the end of calendar 2007. However, only 18% of all dwellings financed last month had fixed loans, down from 21% in late 2006.

The third trend, as evident in the table below, is that owner-resident interest is highest in Canberra, Queensland and Victoria; whilst investor confidence is best in Queensland, South Australia and the Northern Territory.

Queensland’s strong employment and population growth was responsible for the state’s double showing.

Canberra is strong because it is relatively affordable and the federal government has increased its workforce by around 10% over the last three years. Bright employment prospects in both Victoria and South Australia are also giving their housing markets a boost. New housing in both these states is also quite cheap when compared to the other mainland capitals.

These new figures confirm that the cost of building a new house has gone beyond the reach of most Australians. Whilst the established market is driven mainly by older people who already have a home and are trading up, first home buyers and young families often buy a new home.

Just 18% of the loans issued last month were to first home buyers.

By Michael Matusik, Director of Matusik Property Insights.*