Investor credit growth slows again
Housing credit growth was slow again at 0.3 per cent in April, following a result of 0.3 per cent in March, according to the Reserve Bank's Financial Aggregates.
Credit growth continues to slow over the year for housing, down to 5.2 per cent (from 7.9 per cent a year earlier).
Some investors are choosing to sell their properties in the face of rising mortgage costs and tough financing buffers, and investor credit growth slowed to just 0.26 per cent in April.
Clearly this is an extremely low figure given record high population growth.
To an extra decimal place, housing credit growth did at least pick up a bit from 0.31 per cent to 0.33 per cent last month, so the credit impulse suggests we'll likely see home prices rising ahead.
That's especially likely to be true in Sydney where the prevailing tight lending conditions mean the chronic housing supply shortage is going to prove to be of an Olympic standard.
Overall, credit growth slowed to 6.6 per cent over the year, though there has been a methodology change for business credit (and to be perfectly honest I haven't yet looked at quite what that means).
Tight lending buffer to continue
I've been suggesting/arguing for some time that lending buffers for mortgages are too tight, which seems to me at least to be borne out by all-time low rental vacancies and the lowest building approvals in over a decade.
The prudential regulator is holding the line, however, suggesting that a 3 percentage point assessment buffer is the appropriate setting given the high inflation we've seen over the past year.
Ironically a big chunk of the inflation going forward is now going to come from rising rents, with the number of temporary visa holders in Australia climbing to a record high 2.46 million in Q1 2023, up dramatically from 1.82 million a year ago.
Despite record demand for rentals, many landlords are selling, and not many are buying.
Personally I think this combination of settings is a disaster in the making, and rents in Sydney, Melbourne, and Brisbane will ultimately spike to reset around 50 per cent higher for sought-after properties as landlords pass on higher costs (now including a more sweeping land tax in Victoria), however much this may or may not be picked up in the official inflation figures.
But, whatever, it looks like I'll be losing this debate...
Capacity constraints
There is a valid counter-argument that arguably the capacity to build homes is already fully stretched, and the dearth of building approvals figures won't make much difference to housing supply this year.
Today's construction work done figures for the March 2023 quarter showed another strong +5 per cent growth in engineering work for public and infrastructure projects, but residential building slowing as builders and developers go bust left, right, and centre, to be down -5 per cent over the year to half-decade lows.
Engineering work done is up +15 per cent over the year, and given it’s much more lucrative than working in the residential building sector right now there's no realistic way housing supply is going to keep pace with population growth in the largest capital cities at the moment.
More people ditching their home offices and taking in flatmates will, in the end, make more efficient use of the dwelling stock, albeit through higher housing prices and higher rents, noted the Reserve Bank governor today...so eventually the problem will right itself.
We'll just need to pack everyone in a bit tighter, but in the meantime there'll be some whopping rent increases for tenants in the three largest cities.
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CoreLogic reported an acceleration in housing prices in May, led by Sydney, Brisbane, and Perth - the details from Property Update are here.
Listings on the market continue to dive towards decade lows.
Rental vacancies remain very tight, with rents up +0.8 per cent for the month.
Sydney unit rents led the way over the year rising +19.3 per cent, with Brisbane units +16.4 per cent.
Source: CoreLogic
