ECONOMIC OUTLOOK with Shane Garrett, Chief Economist of MBA Australia

The latest home lending figures for the ACT housing market make for some interesting reading. Of the 113 new home construction loans in the ACT during the three months to January 2024, just under half (43.4 per cent) were accounted for by housing investors. However, housing investors took up a much smaller share (29.8 per cent) of the loans made for the purchase of existing homes.

The stronger investor appetite for new homes is probably explained by the fact that apartments and units constitute a much larger share of the new home building pipeline when compared with the established stock of homes in Canberra. New, higher density homes tend to be more ‘investor friendly’ than older detached houses for reasons related to maintenance and management.

The current appetite of housing investors is strong a number of reasons. Home prices are rising again, rents have accelerated, and interest rates are likely to start falling later in the year. As a result, housing investors are taking out larger loans than owner occupiers in some parts of the ACT’s home lending market.

Over the three months to January 2024, the typical size of housing investor loans for the construction of new homes was $785,700 - slightly larger than for owner occupiers ($779,700). The average size of new home construction loans in the ACT is bigger than in every other state and territory. When it came to loans for the purchase of existing homes, the gap was much wider: housing investors typically borrowed $650,100 against $611,900 for owner occupiers.

In the past, the ACT residential building industry has demonstrated its capacity for delivering large volumes of new higher density housing. Accelerating rents and rising home prices both signal that much more new home building is needed on this side of the market, especially with both population and employment set to continue expanding in Canberra over the coming years. Whether we get enough of the new homes we need will rest on the degree to which the current set of formidable challenges is tackled, including labour shortages, high building costs and planning/development delays.