The balance is shifting towards first home buyers, the Albanese government says as it cheers the steepest fall in investor home loans on record.

A 30.6 per cent fall in investor lending was driven in part by curbs to negative gearing and the capital gains tax discount in Labor’s May budget, the Australian Bureau of Statistics said on Wednesday.

The number of new home loans taken out by investors plummeted to 35,301 in the September quarter — the first full quarter since the tax changes came into effect — from more than 50,000 in the three months to June.

Rising interest rates were already sending property values downwards and investors retreating from the market at a greater rate than owner occupiers.

But the unprecedented flight of investors, relative to owner occupiers, showed this was no typical cyclical downturn.

The housing market is undergoing a structural realignment that will make it easier for first home buyers to get a foot on the property ladder long term.

The market had been geared towards investors for a generation, Housing Minister Clare O’Neil said.

“And where did it get us? Plummeting home ownership, out-of-control house price increases and a generation losing hope,” she said.

“These numbers show the balance is shifting back towards Australians who are buying a home to live in, and especially to our first home buyers.”

Lending to owner-occupiers also fell, but by a much shallower 5.3 per cent.

The share of total home loans going to owner-occupiers has climbed to 68 per cent from 59 per cent before the May budget.

Loans taken out by first home buyers decreased 8.6 per cent during the quarter and was 12.3 per cent lower than a year prior.

But first home buyers still accounted for a “significant share of owner occupier lending” at more than one-third, the ABS said.

“Our data suggests that investor activity is being influenced by factors beyond increasing borrowing costs, including the potential impacts of tax changes and expectations of lower house prices,” ABS head of finance statistics Mish Tan said.

The government’s decision to carve out new builds from the tax changes, in order to encourage new supply, also appeared to be working as intended.

In the March quarter, 17 per cent of the value of new loans taken out by investors was for new builds. In September, that figure was 28 per cent.

“It was encouraging to see in today’s figures that investors are shifting towards new builds and the share of lending going to first home buyers is growing,” Treasurer Jim Chalmers said.

While home approvals and commencements have been trending up, the construction industry says the tax changes will be bad for supply in the long run.

Slashing investor tax incentives at the same time as rising interest rates and construction costs had paralysed the building industry, Master Builders chief executive Denita Wawn told the National Press Club in Canberra.

“Builders are now saying to me … I haven’t got much work on next year because project feasibility just doesn’t stack up.”

Opposition housing spokesman Andrew Bragg said the fall in overall lending was a “disaster”.

“What planet is (Clare O’Neil) living on? Why is she saying that fewer loans is good?” he said.

There are signs mortgage stress is rising as a result of higher interest rates.

Australia’s largest lender, Commonwealth Bank, reported on Wednesday home loan arrears of 90 days or more rose by seven basis points to a 14-year high 0.8 per cent in the September quarter.

Home loan applications were down 16 per cent in the quarter, CBA revealed.

NAB revised its forecast for the total drop in national dwelling prices from 11 per cent to 14 per cent.

A recovery in prices is unlikely until the Reserve Bank appears ready to start cutting rates, which probably meant the second half of 2027 at least, Cotality head of research Gerard Burg said.

-AAP