Why Property Investors have a co-dependent relationship with First Home Buyers

Darren Moffatt

In a wonderfully insightful article today, Mark Armstrong highlights an aspect of the Australian housing market that doesn't get much attention: the co-dependent relationship between property investors and first home buyers.

That's right first home buyers, investors need you. And at a time when first home buyer activity is at an all time low, they need you BADLY.

How so?

Well, currently investor demand is starting to bring some real heat back into the property market. But as Mark rightly points out, investors only comprise about 30 per cent of buying activity ...

"and although this can drive markets to new heights, it is home buyer demand that really maintains property values over the longer term."

Without strong first home buyer activity, there's a good likelihood that any gains in house prices from an investor surge may be short-lived. First home buyers drive the sales turnover at the lower price range and put a bed under the entire market.

As Mark says:

"Investor driven property booms can cause dramatic spikes in the market because of the kinds of property most investors want to buy."

BOTTOM LINE: Investors need first home buyers to be active in the market in order to fully protect their capital investment. A rising tide floats all boats, but if investors are (largely) swimming alone they can be seriously exposed when the investor surge drops off.

So how can we encourage more first home buyers back into the market? There are no easy eanswers to this, but as I've blogged before recent changes in government policy have made matters worse. Until prices modulate down, affordability improves, or governments waive or reduce stamp duty for first home buyers, we're unlikley to see an improvement anytime soon.

In fact, it's well known that investors are often gazumping what first home buyers ARE left in the market.

Let's hope this is not an ominous sign.