Last week I wrote that investors had left the market. Today the Bureau of Statistics put a number on it, and it is a big one, funny that!
The number of new investor home loans fell 30.6% in the September quarter to 35,301. The ABS says that is the largest quarterly fall on record, and the third quarter in a row of falls. Over the year investor loans are down 38.5%. Across all borrowers, the value of new home loans fell 15.5% to $81.2 billion, the biggest quarterly fall since the series started in 2002. We should be taking notice.
Where the investors went
When you dig into the detail, the story becomes a bit clearer. Investor loans to buy established homes fell from 40,136 to 25,843 in the quarter. That is a drop of about 36%, and about 46% on a year ago (our calc from ABS Table 13, seasonally adjusted).
Investor loans for new homes tell a different story. Loans to buy a newly built home actually rose a little, from 2,428 to 2,473. Loans to build a new home fell about 12% (our calc), from 8,240 to 7,267, which is a much smaller fall than for established homes.
So roughly 27% of investor loans in the September quarter were for new homes, up from about 21% in June and about 17% a year ago (our calc).
The ABS itself said investors are being influenced by more than borrowing costs, possibly including the tax changes and expectations of lower prices. I think that is exactly what is going on.
So maybe more investors took in what I said in my last post than I thought.
The tax changes are doing what they were meant to do
For homes bought after Budget night on 12 May 2026, negative gearing from 1 July 2027 is limited to new builds, and investors in new builds can still choose the 50% capital gains discount. That law passed in June. Investors have clearly read it. They are leaving established homes and the ones still in the market are leaning towards new homes.
I have no problem with that part. Pushing investor money towards new supply rather than bidding up existing houses is the right idea if we want more homes built. The details of what counts as a new build are still before the Senate, with a committee report due this Friday, so let’s see what that brings out. I for one will be interested, and investors should be too.
But the builders are still going backwards
But here’s the kicker, and the part that worries me. Even with the tax settings in their favour, loans to build new homes are falling. Owner occupier construction loans fell about 14% in the quarter (our calc), from 9,483 to 8,114. Add investors and owner occupiers together and construction loans fell from 17,723 to 15,381, down about 13% (our calc).
That is the effect of five rate rises this year and a cash rate of 4.85%. The tax changes can shift investors from old to new, but they cannot make a loan affordable. First home buyer loans fell 8.6% in the quarter and are down 12.3% on a year ago. The number of owner occupier loans in Queensland fell 10.4%, the biggest fall of any state.
The Commonwealth Bank told the market this morning that its home loan applications are 16% lower than a year ago and arrears have started to rise, up 0.07 percentage points to 0.8%.
Fewer construction loans today means fewer homes started next year. We are supposed to be building 240,000 homes a year under the Housing Accord. I’ve seen this in previous downturns and I’ve said it before: when work dries up, trades leave the industry, and when demand comes back the capacity isn’t there and costs go up. Remember, once prices rise for trades or suppliers, that’s the new floor. It’s very rare for them to come back down.
What it means
For government: this government must take some responsibility. Its spending is adding to demand and the Reserve Bank keeps lifting rates to cool it, as I said on Cup Day. The tax changes favour new homes, but if Canberra wants those homes built it has to stop working against the one lever the Bank has.
For home buyers: lending has dropped sharply, which means less competition at the moment. If you are looking at a new home, the state incentives for first home buyers are still there, and in Queensland that includes the grant of up to $30,000 for new homes under $750,000.
For investors: the new rules are now law and new homes keep the tax benefits. Get advice on your own position, as this is general information and not financial or tax advice.
For builders: watch your pipeline closely. The sales you lose this quarter show up as empty slabs next year.
Darren Wallis is Chairman of G.J. Gardner Homes and was its CEO and Managing Director from 2000 to 2020.