Investors are being pushed out of Australia's housing market with government regulations generating a 6 per cent drop in investor loans as first home buyers record "strong growth" for the first time in years.
In Victoria, the number of loans to first home buyers grew by an extraordinary 57 per cent since June, with a 32 per cent increase in NSW.
Home loan lending fell by 3.6 per cent overall, figures released by the Australian Bureau of Statistics on Thursday showed, well below the markets expectations of a 2 per cent rise and fuelling speculation of a further drop in house prices.
Economists have described the figures as "unambiguously weak" and a result of the "clear influence" of the government's tighter lending restrictions.
In March, the Australian Prudential Regulation Authority forced banks to pull back on risky loans after investment lending grew to more than 50 per cent of the nation's loan book, sparking concerns over the stability of the overheating market.
September's 6 per cent drop is the largest decline in the past two years.
"We expect the housing market to experience a soft landing," said Commsec economist Craig James.
The bureau singled out initiatives by the Berejiklian and Andrews governments as the reason for the surge in first home buyer approvals to 17.4 per cent of all loans, the highest level in more than four years.
"The number of loans to first home buyers has recorded strong growth in recent months," the bureau said.
"The increase has been driven mainly by changes to first home buyer incentives made in July by the NSW and Victorian governments."
Both governments have given first home buyers relief from stamp duty and grants for new homes.
The number of loans being granted to build new homes has not been seen in four decades, with the suburban rush of the 1970s the last time they were at this level, fuelled by population surges in Sydney and Melbourne.
The category was the only type of loan to record a rise in overall lending since last year, growing by 1.8 per cent to $11.3 billion.
"First home owners have also been brought back to the market due to the large supply of apartments that are being completed at the moment," said the Housing Industry Association's principal economist Tim Reardon.
"This is a very positive sign of a healthy market."
But the figures may not be such good news for renters. Fewer investment properties tightens the supply of potential rental properties, potentially pushing up prices in high demand areas in Sydney and Melbourne.
"The cooling of investor activity in the market should be closely monitored," said Mr Reardon.
Treasurer Scott Morrison said targeted actions to curb lending growth had let out some of the steam in the hotter housing markets in Sydney and Melbourne.
"The primary pressure pushing up house prices in those markets is the fact there has not been enough supply to meet demand," he said. "Strong growth in investor lending has added to this problem, with speculative buying fuelled by low-cost interest-only finance."
But Mr Morrison's ambitions to give first home buyers another boost through the Turnbull government's "super saver" loans scheme this year have been dashed by the concerns of several crossbench senators.
The legislation to allow first home buyers to contribute up to $30,000 in pre-tax super to a deposit will require the support of all but two crossbench senators to pass Parliament this year.
Labor and the Greens are strongly opposed to the scheme because they believe it will just increase house prices.
"Labor has said no to giving our first home buyers a tax cut," he said. "So we are working constructively with the crossbench to get the job done."