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Investing in housing sink to record low -

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ELEANOR HALL: To the Australian economy now, and as rents surge, you might think that people would
be pouring into the investment property market to take advantage of the returns.

But that is not happening.

Amid all the talk of a rental crisis, the growth in credit for investor housing has sunk to a
record low.

Joining us with more details is economics correspondent Stephen Long.

So Stephen, where do these figures on investors come from?

STEPHEN LONG: A very credible source, Eleanor - the Reserve Bank of Australia.

It regularly releases credit aggregates and the latest figures show that investor housing was up
only half a per cent in the month of March - 9.5 per cent over the 12 months and that is the lowest
growth in the history of the series.

Very, very low. And when you look back at 2002, end of 2002, early 2003 at the height of the
housing boom on the eastern states, investor housing was growing 25 per cent a year.

So this is an incredible collapse over that period of time.

ELEANOR HALL: So with the returns so good, why aren't more people investing in residential
property? Is it the interest rate hikes putting them off?

STEPHEN LONG: Pretty much.

I think there's a couple of things. One is the uncertainty about the economic future.

But the key thing is that this boom in investor housing and indeed housing overall was driven by
cheap credit, low interest rates. We've seen interest rates rise from a level where you had the
cash rate at 4.25 per cent and people able to borrow at 5.5 to six per cent.

And now you've got the cash rate at 7.25 per cent and people are paying nine, 9.5 per cent to
finance mortgages.

So pretty much you have a situation where people can't afford to borrow the money.

Now economists love to look through the prism of supply and demand and say that because there's a
shortage of investor housing you would expect people to be pouring into the market.

But always demand is fuelled by credit. And we have a situation where the credit is just drying up.

ELEANOR HALL: The latest report from Australian Property Monitors says the housing market is flat,
the boom is over. Do these figures from the Reserve Bank tally with that assessment?

STEPHEN LONG: I think they do. If you look overall at housing it's up 11.2 per cent in the year to
March. Now that's the lowest credit growth in housing in nearly 10 years, since October 1998.

So we're already at this stage, and we wouldn't have seen the full impact of the rates rises we've
had, seeing a major hit into the housing market.

That pales compared to overseas, where you have falls of about 14, 15 per cent overall in the
States, and in some cities 25 per cent falls over the previous year.

There's talk of a property price crash in Britain. London in particular, because so many people in
the finance sector are losing their jobs and the easy credit is drying up.

Spain, property prices soared even more than in America during the lead up to the whole subprime
debacle.

So you've got a lot of concerns there.

In Australia, one of the other things apart from housing is personal credit growth which has really
collapsed - it's in the negatives.

ELEANOR HALL: So is there a real danger here of a property market crash?

STEPHEN LONG: I think that it's a wait and see. But certainly it would make sense to expect that we
are going to see a downturn in the property market which could be severe.

I think that there is a real danger of a property price crash overseas. We may not be quite that
bad.

But still, when you have an unprecedented boom in asset prices driven by cheap money and the cheap
money reverses, you've got to expect that you may well see things go the other way.

ELEANOR HALL: Economics correspondent Stephen Long, thank you.