Will the 2017 Federal Budget provide first home buyers some relief? Professor Peter Phibbs and Professor Nicole Gurran write on the Coalition Government's policy response.
The Federal Treasurer clearly understands the housing affordability pressures facing moderate and low income renters and Australia’s growing homeless.
His budget speech set the scene for a package of measures to boost affordable housing supply and recalibrate demand settings. A record number of new and recycled measures recognise the spectrum of crisis housing to home ownership, but there’s little in the way of substantive policy change.
The underlying structure of Australia’s housing system and demand distortions that have contributed to globally high house prices remain largely untouched. Rather than target or scrap negative gearing, the government opted to simply wind back some of the most excessive concessions in a series of measures best described as placebo policies.
Rather than target or scrap negative gearing, the government opted to simply wind back some of the most excessive concessions in a series of measures best described as placebo policies.
Capital gains tax discounts on investment properties remain – and, strangely, extended by an extra 10% for landlords who lease the property at an affordable (market discount) rent for three years. This is badged as an incentive to invest in affordable housing but does little to shift investors away from short term capital gains and towards stable, long term rental housing.
The government describes its “stronger rules for foreign investors owning Australian housing” as “reducing pressure on housing affordability”. It will reinstate a limit on foreign ownership in new developments (capping the proportion of dwellings purchased in a new project to 50%); and introduce a charge for foreign owners leaving residential property vacant for more than six months. It will also tighten rules to ensure foreign investors pay capital gains tax on the sale of Australian properties.
Since foreign investment accounts for a small proportion of total investment in Australian housing and is geared towards new housing supply, it is doubtful these measures will have a significant impact on house prices. However, some higher density apartment projects may struggle to obtain finance in markets that have become dependent on foreign demand.
Allowing first home buyers to salary sacrifice into superannuation to raise a deposit (maximum of $30,000 over two years) extends tax incentives to aspiring owners. It’s unlikely this will make much difference to purchasers in high demand markets, particularly those already paying unaffordable rents. By helping those who afford an additional salary sacrifice to accumulate a bigger deposit and finance a larger home loan, counts as fuelling rather than cooling demand.
A new National Housing Finance and Investment Corporation (NHIC) will support affordable housing supply by facilitating access to low cost loans. This is a worthy initiative for a low initial cost to the government, which committed $9.6 million in 2017-18 to establish the NHIC.
The NHIC will distribute one billion dollars to help finance infrastructure for residential development through the National Housing Infrastructure Fund - a scheme reminiscent of Labor’s former Housing Affordability Fund. Expect some residential projects to move forward faster but this won’t dramatically change the pace or price of new homes unless funding is tied to mandatory affordable housing outcomes.
Funding to the States and Territories for social housing under the current National Affordable Housing Agreement will need to be renegotiated. Rebadged as a new “National Housing and Homelessness Agreement”, bilateral funding agreements will need to be struck between the Commonwealth and the States tied to “aggregate” supply targets, including “targets for social and affordable housing”.
There’s a welcome, modest increase in homelessness funding ($375 million over 3 years). But there’s no increase in the total funds available for social housing, despite growing waiting lists and a chronic maintenance backlog across aging public housing estates.
The States are now expected to stretch funding further by “renewing” or redeveloping public housing estates and transferring public housing to community housing providers.
Further funding for the precarious social housing sector now seems tied to state planning reform and ongoing levels of housing production in the private market.
Despite record levels of new supply in recent years the Treasurer is still convinced that regulatory barriers are holding back residential development.
State and local reforms to enable inclusionary zoning foreshadowed in the budget speech, would be a shift in the right direction rather than pushing for more land use deregulation. Inclusionary zoning schemes secure affordable homes as part of new development, leveraging value created through planning and infrastructure investment. Widely used internationally, requirements to include affordable rental or home purchase options in new housing schemes are long overdue in Australia.
Western Sydney is singled out for a “City Deal” to “incentivise” local and state government reforms and rezoning efforts to accelerate housing supply.
Planning reform and rezoning for housing supply is old news in Western Sydney. These are areas with very fast approval times, which in most cases have already rezoned available land around railway stations and centres.
What is built depends on the actions of a number of players – notably banks and developers and the Reserve Bank – over which local government has no control. In Sydney, for example, over the last 12 months there’s been about 59,000 dwelling approvals granted through the planning system, but only 35,000 dwelling completions. Getting councils to approve more housing through the planning system is no guarantee that housing supply will be delivered.
The notion that empty nesters are hoarding Australia’s precious supply of larger family homes is another housing policy cliché. The government plans to “reduce pressure on housing affordability” by allowing empty nesters to contribute proceeds from selling their home into superannuation. But the asset test for pension eligibility, combined with stamp duties on property transactions, persist as fairly strong disincentives for retirees to “free up” their family homes for “young families starting out.”
The Treasurer’s budget speech and “housing package” signals a change in the policy language around Australia’s housing system and chronic affordability problems. But there’s little change to demand policy settings that have fuelled these problems. Policy levers for affordable housing supply are more promising but remain in beta release.