Tag: housing affordability

Avocados and housing affordability? It’s a green herring

From The New Daily.

Avocados are in the news again, which must mean housing affordability is too. This time it was wunderkind property developer Tim Gurner who told 60 Minutes that millennials “buying smashed avocado for 19 bucks and … coffees at $4 each” shouldn’t be complaining about the difficulty of getting into the property market.

But blaming young people for eating pricey avo brunch doesn’t shed any light on housing affordability. It’s just a green herring.

Mr Gurner is probably right that a lot of young people are happy to live a life of brunch and overseas travel. But these are unlikely to be the same Australians who feel locked out of the housing market. They either can afford to buy a home, or are happy renting or living with their parents while they enjoy their 20s. And good on them.

The real problem is that the real estate market roundly cheered for decades has turned out to be a Ponzi scheme of sorts. Rapidly and consistently rising real estate values enhanced the wealth of many Australians, but the rest have been stranded.

Rising prices have been a staple barbecue and dinner party topic of conversation since the heady 1980s. It was a decade of financial deregulation, easy access to home lending and a bullish sense of prosperity. Economic reform had transformed the ‘Great Australian Dream’ into the ‘Great Australian Wealth Machine’.

A report by property analyst CoreLogic shows that in the five years to 2016 the proportion of household income required for a 20 per cent deposit on a home climbed from 85.9 to 138.9 per cent. This at a time of static wage growth, adding to the difficulty of raising a home deposit. In the five years to 2016, national dwelling prices rose by 19 per cent while household incomes rose by just 9.2 per cent.

Australia remains a nation of homeowners, but the Great Australian Dream is under pressure. Nationally, according to the Melbourne Institute, 68.8 per cent of households were owner-occupied in 2001; by 2014 this had fallen to 64.9 per cent. The impact of investors on the housing market is also clear. According to the Bureau of Statistics, at the close of 2016, investors comprised 47 per cent of national mortgage demand – 55 per cent in NSW.

For those who do feel unable to realise their dream of home ownership, avocados aren’t the problem. They’re locked out because of inflated property values, poor wages growth, the impact on supply of a rapidly rising population, and people like Tim Gurner whose wealth depends on stoking the market.

Sadly, it’s difficult to assume there is a ready solution out there just waiting to be discovered.

Public policy does have a role to play in addressing housing affordability, but how far can policy go in solving a problem which at its root is down to market forces?

Treasurer Scott Morrison was irresponsible when he flagged that housing affordability was going to be the centrepiece of his budget. Once again, the Turnbull government set expectations it was unable to meet.

The Budget’s ‘ta-da’ contribution to easing the burden for first homebuyers was the “first home super saver scheme” which will allow first-home buyers to make voluntary contributions of up to $30,000 to their superannuation which will be made available for a home deposit at concessional tax rates.

University of NSW economics professor Richard Holden says the measure will do “absolutely nothing to help first home owners”, arguing, as many others have, that the subsidy will actually force home prices higher.

“It’s bad economics, somewhat costly and a cruel hoax on prospective home buyers who are struggling with an out-of-control housing market,” he wrote in The Conversation.

The key to addressing housing affordability is not policy sophistry whose only purpose is to give the impression of action. A more nuanced understanding of Australia’s housing market, in the context of a rapidly changing economy, is required before meaningful policy settings can be made. Housing affordability also needs to be understood in the context of a rapidly growing population.

We need fewer policy stunts from the government and a more considered vision for Australia in the 21st century. It may well be time for the Great Australian Dream to be updated. The Great Australian Dream 2.0.

The human face of Australia’s housing crisis

From The New Daily.

Chris Radford and Michelle Apostolopoulos are high school sweethearts. They met and fell in love at Northcote public school, which sits on the same main road that runs near both their parents’ fully paid off houses.

They both rent in Melbourne and are fast approaching the age their parents married, bought houses and started families. Repeating that feat in today’s market seems impossible.

Chris, 24, has spent the last six years of his life stacking shelves in a trendy inner-city supermarket, so he knows the price of avocados – that symbol of millennial decadence that is supposedly holding him back from property ownership.

“Four bucks, five bucks each. Yeah, I know how much they cost,” he says. “I don’t eat a lot of avocado to begin with.”

The couple, who plan to marry soon, are exactly who Treasurer Scott Morrison’s latest federal budget was supposed to help: hard-working, hard-saving Australians who want nothing more than a modest home to call their own.

Unlike their parents’ generation, the ‘Australian Dream’ seems to be getting further out of reach, what with rising prices, penalty rate cuts and record-low wage growth.

Chris pays $110 a week for a room in a house he shares with two friends in the Melbourne suburb of Moonee Ponds. When it rains, water drips through the ceiling into a strategically placed pot.

The house will soon be knocked down for apartments, so the landlord has given up on the place.

When his parents bought their house in Thornbury for $80,000 back in 1991 it was not much of a stretch for two people in their mid-20s. It is now worth at least $1 million, probably more.

Because of this enormous increase in value, buying even a more modest house today requires vastly more effort. Chris and Michelle, 23, estimate that a median-priced Melbourne home will require them to save a 20 per cent deposit of $150,000.

Even if they were to save every dollar they earn, it would still take them years to build that much – and that’s without taking price growth into account.

“It’s so unfair, two people should be able to save enough in a few years for a house!” Michelle says.

“Even if we saved hard I know we wouldn’t be able to afford within 32 kilometres of here.”

Part of the reason that saving is so hard for the couple is the new round of attacks on their pay.

Chris has worked his supermarket job all through high school and now into university. He works Sundays and has for years. He also works unpaid at an internship as part of his university degree, which requires him to work full-time on top of his part-time work.

This leaves him relying heavily on weekend penalty rates — which he’ll lose come July 1 because of a recent decision by the Fair Work Commission.

“If I didn’t have to work on Sunday, I wouldn’t,” he says.

Michelle, too, regularly works weekends. But because she works for one of Australia’s two main supermarkets, she’ll be lucky enough to keep her penalty rates.

“People who work weekends miss out on seeing family and friends,” she says.

“You deserve [penalty rates], you’ve busted your arse all weekend.”

They’re both disappointed the government didn’t do more in the budget to make things easier for low-paid workers and aspiring property buyers like themselves. Treasurer Morrison’s plan to allow first home buyers to tip up to $30,000 into their superannuation doesn’t excite them.

“When you really look at the details it starts looking practically impossible,” Michelle says.

“The government isn’t doing anything to make it easier to buy a house.”

To make matters even worse, with the university debt repayment threshold dropping, Chris and Michelle will both have to pay back more to the government each year.

“A lot of people think you’re not working hard enough if you can’t save a deposit. They just pick on young people because we can’t do anything about it,” she says.

“What are you supposed to do? Store everything in a cardboard box, then live in the cardboard box too?”

Bowen pledges to block ScoMo’s main housing measure

From The New Daily.

Shadow Treasurer Chris Bowen has slammed as “highly objectionable” the Turnbull government’s budget measure to allow young Australians to save for a deposit inside their super funds.

In his budget reply speech on Wednesday, Mr Bowen said most of the measures in the government’s “sham” affordability package were “ineffective”, but he took issue with what has been dubbed the ‘First Home Super Saver Scheme‘.

He confirmed Labor would vote against the “badly designed and ill thought out” proposal if and when it comes before Parliament.

Mr Bowen’s primary concern seemed to be that extra contributions from mortgage savers would be lumped together with compulsory contributions from employers.

“How voluntary contributions will be kept separate from compulsory contributions in the event of a downturn, where balances can contract, is beyond me. They can’t be.”

The budget papers say the scheme will allow first home buyers to salary sacrifice up to $15,000 a year, up to a maximum balance of $30,000, with a tax on contributions and earnings of only 15 per cent. When withdrawing the money to pay for a deposit, the lump sum will be counted as personal taxable income, but the tax rate on the money will be discounted by 30 percentage points.

The government has promised that whatever money a would-be home buyer salary sacrifices into super would be quarantined from losses. The Shadow Treasurer seemed to doubt this is even possible, let alone prudent.

Industry Super Australia has warned the scheme will hurt returns by requiring funds to “maintain more liquid asset allocations to deal with unpredictable withdrawals”. This means funds may have to invest more in cash and short-maturity securities, which carry lower returns.

Mr Bowen also said the scheme would breach the very same ‘sole purpose’ test the government is trying to legislate, which would clarify that super savings are intended to provide income in retirement to substitute or supplement the age pension.

“The whole idea of an objective is to have a benchmark against which changes to superannuation can be judged. Yet the government’s first proposed legislative change since announcing their preferred objective would undermine the goal of providing income in retirement.”

The Shadow Treasurer also disputed that super saver accounts would do anything to boost affordability.

“We know the government dabbled with all sorts of harebrained ideas to allow access to superannuation. The eventual model they settled on, allowing voluntary contributions to be withdrawn by first home buyers, will not make a difference for the vast majority of first home buyers,” he said.

“Without negative gearing and supply side reform, if it has any impact at all, it will simply drive up house prices. It is badly designed and ill thought out.”

Mr Bowen also ridiculed the government’s optimistic predictions for almost doubled wage growth by 2020-21, after the Australian Bureau of Statistics revealed that wages have continued to stagnate.

Budget 2017 charts new social and affordable housing agenda

From The Conversation.

Under pressure to tackle deepening housing affordability problems, Treasurer Scott Morrison has included various housing policy measures in his budget, some relating to Australia’s small sector of social and affordable housing.

One headline-grabber is the creation of a new entity, the National Housing Finance and Investment Corporation (NHFIC). This will source private funds for on-lending to affordable housing providers to finance rental housing development. However, the bigger issue for the sector remains federal and state funding.

This public funding is the money that, along with tenants’ rents, co-funds state and territory housing and homelessness services. Here too Morrison is proposing reform, particularly to the primary federal-state funding arrangement for social and affordable housing, the National Affordable Housing Agreement (NAHA).

A couple of months ago we suggested the NAHA needed a reboot. Recognising the seriously run-down state of the system, we argued for an increase in funding from its present starvation level. Morrison now proposes a new federal-state funding agreement, the National Housing and Homelessness Agreement (NHHA).

The level of federal funding will be the same as under the old NAHA. But the Commonwealth will press states and territories for action in defined “priority areas”. In effect, this looks like a return to a Canberra-led reform agenda for social and affordable housing unseen since the early Rudd government.

Setting aggregate supply targets

In what appears a significant passage, the budget papers reveal the government’s “priority areas” for the NHHA. We’ll consider these in turn, and then the recurring issue of inadequate funding.

Lack of transparency on the costs incurred by state and territory housing authorities in operating their social housing portfolios has been a particular problem under the NAHA. This is an area where federal engagement is welcome.

All levels of government should be pressed to quantify the level and type of need for housing in the community. And they should be made to set clear “new supply” targets for meeting that need.

That said, the federal government should stop pretending to be shocked at the lack of new social housing delivered by those authorities under the NAHA. The shortfall in NAHA funding has been obvious for years. It simply is too low to bridge the gap between the rents low-income public housing tenants can afford to pay and the costs of properly maintaining the system, let alone growing it to keep pace with rising need.

Residential land development

The stress laid on this issue within the budget policy statement reflects the federal government’s stated concern about “the supply side” of the housing affordability problem. It has framed state government planning controls as an impediment to new housing development.

However, merely loosening requirements and offering existing land owners the prospect of greater development does not ensure it will actually happen.

To ensure land owners don’t just sit on development opportunities speculatively, the federal government should use its NHHA leverage. This could include pushing the states and territories to make greater use of land tax, which would spur development and bring under-utilised land and housing to market.

Inclusionary zoning

Inclusionary zoning is a specific type of planning mechanism. It requires housing developments (above a certain size) to include some proportion of dedicated affordable housing. Ideally, this should be rental housing preserved as “affordable” in perpetuity.

Inclusionary zoning is long established in other countries and has long been demanded by housing advocates in Australia. It is now the subject of increasing interest from planning authorities – for example, the Greater Sydney Commission.

The co-financing arrangements for the NHFIC could incorporate active use of land-use planning powers for inclusionary zoning. Development sites – or developer levy proceeds – could be part of state and territory contributions to funding affordable housing development.

A commitment to build into the NHHA incentives for stepped-up use of inclusionary zoning by state governments is, therefore, very welcome.

However, the budget papers indicate that state compliance with this NHHA expectation might involve not only housing dedicated to affordable rental housing, but also “dedicated first home buyer stock”. This seems to raise the prospect of developers meeting inclusionary zoning requirements simply by reserving some newly built units for first home buyers rather than investors.

The best way to enhance first home buyer prospects vis a vis investor landlords would be to level the playing field by winding back investor negative gearing and capital gains tax concessions, not through this kind of tinkering. And to cast such “FHB reservation” initiatives as in any way equivalent to inclusionary zoning for affordable rental housing would be a highly retrograde step.

Renewing affordable housing stock

An interesting inclusion in the proposed terms of the NHHA is a clause about renewing affordable housing stock.

First, it appears positive in acknowledging the need for a public housing overhaul and indicating a new level of federal government interest in making this happen.

At a minimum, states and territories should be required to undertake a comprehensive audit of their existing portfolios. The level of outstanding disrepair has to be costed. They also should identify where renewal can best take place, balancing need for expanded and upgraded housing with sensitive treatment of existing communities.

Second, it indicates federal backing for further transfers of public housing as a growth path for the affordable housing industry. However, as our recent research for AHURI shows, this is feasible only if the operating cost gap is funded.

Past community housing growth through transfers, particularly following the 2009 housing ministers’ commitment to expand community housing to 35% of all social housing, involved an understanding that Commonwealth Rent Assistance, paid through Centrelink to transferred tenants, would help cover that gap.

Without additional funding in the NHHA, a new phase of growth through transfers requires a recommitment by governments to use rent assistance as an effective operational subsidy to community housing providers. A new target and timeframe to replace the 35% benchmark also need to be considered.

Homelessness services

Previously the subject of a separate funding agreement (the National Partnership Agreement on Homelessness), homelessness services have struggled for years in the face of that agreement’s pending expiry and short-term extensions.

The NHHA will fund homelessness services on an ongoing basis, which the sector has welcomed.

Funding shortfall remains

As we’ve indicated throughout, the objectives of the NHHA – and of the social and affordable housing system generally – will continue to run up against the reality that decent housing of this kind costs more than low-income households can afford to pay.

This applies especially to people living on the miserable level of benefits such as Newstart. A subsidy is required, both to build up the stock and to keep it in good order.

Clearer targets, more transparent cost accounting, and innovations like NHFIC finance won’t bridge the gap. On the contrary, to successfully use those initiatives to build more stock, both state and territory housing authorities and non-government affordable housing providers need a larger subsidy than present funding provides.

The budget has indexed NHHA funding to wages. It would be nice to think that land and housing prices will increase only in line with wages.

In reality, properly funding the growth and maintenance of our social and affordable housing stock will require more than what the federal government is offering.

Authors: Chris Martin, Research Fellow, Housing Policy and Practice, UNSW; Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW

Tiny houses: the big idea that could take some heat out of the housing crisis

From The Conversation.

If you could have a new home, exactly to your specification for about a year’s average salary wouldn’t you take it? Many people, in the US, UK and Europe want to find an alternative housing solution that is cheap and mortgage free but also ecologically sustainable. The solution may be to build so-called “tiny houses” – very small dwellings, often built on trailers, that make the most of unused, unwanted or free sites in the city or country.

The tiny house is, indeed, tiny. It comes in at less than 25 square metres, but is able to provide comfort and security at minimum cost. These are primarily wooden buildings and can be bought ready-to-use or can be assembled by their future occupant. For as little as £15,000, you can buy a kit, or for up to £50,000 you can get a fully assembled and fitted-out home for two.

Because of their size they can be built on a steel-framed base similar to a trailer or caravan, meaning they can be mobile and therefore capable of use on temporary sites. They are usually single-space dwellings, sometimes with an open loft for sleeping reached by a ladder or steep stair with a shower room below. Most people would choose to set up a permanent or temporary connection to conventional services, but you can also go “off-grid” with solar panels, wood burners, and bottled gas for energy needs and chemical toilets or outhouses for sanitation.

Cutting back

There are now so many tiny house enthusiasts that it can justifiably be described as a movement, with online forums for practised and aspiring builders to share ideas and experiences. These houses are both cute and eccentric. Perhaps they tap into a common aspiration that people had as children to build a fort, a tree house, or a den. However, they also meet the deep human need to find a home that is just right for us. For those who have built their own Tiny House there is a special sense of connection to something made by their own hand, tuned to their own needs, even if they have used other people’s plans and commercially available components.

Tiny house advocates are attracted for both practical and cultural reasons. Although the idea of sorting out your main living expense for the price of a family car is undoubtedly a key motivation, it is also about empowerment of the individual to step outside the corporate idea that “bigger and more expensive is better”. Tiny house owners no longer aspire to an island kitchen unit or a wide screen TV in the basement, and it’s fair to say that buying stuff slows right down when you have nowhere to put it.

It is also about environmental responsibility and sustainable living. These buildings, simply because of their size, use considerably less energy both in their construction and running costs. The inclusion of other simple efficiencies such as LED lighting, super-insulation, and water reclamation simultaneously boosts ecological credibility and lowers monthly bills.

A sustainable life

We might think that this sort of living stems from ultra-modern, post-capitalist thinking, but in truth, it isn’t a new concept. The historic roots of the tiny house movement are in the traditional buildings that 17th-century settlers first built when homesteading North America and before that in earlier European rural precedents. These were simple, often one room buildings, built on minimal stone foundations and made from local timber hewn to shape.

The modern versions are often built to the same or better construction standard as full size houses, but contemporary American tiny house owners relate to the early settlers’ way of life using minimal resources, and to Henry David Thoreau’s book Waldon: A Life in the Woods, an important and influential record of the author’s experiment to live a sustainable life.

However, there are hurdles to overcome in tiny house living. A major issue is identifying suitable and available sites. In both Europe and North America planning legislation is clearly aimed at conventional buildings with expensive, long-term connections to services such as water supply, drainage, electricity and gas. Obtaining permission to set up a tiny house in an urban area close to employment and resources isn’t easy.

In the UK, the problem can be even more difficult with planning permission hard to obtain unless the building type meets recognised size, type and materials guidelines. The mobility aspect of many tiny houses can be a bonus here as in theory it enables owners to take advantage of temporary sites with the capacity to relocate when permission expires, or their requirements change.

The crucial question, of course, is whether the tiny house helps solve the larger housing problem in the UK, where housing charity Shelter estimates 250,000 dwellings are needed each year. It is a possibility if planning restrictions on dwelling size and typology can be relaxed and construction companies are willing to take on such low cost work on the small sites these buildings can utilise. However, a fundamental problem of providing any affordable accommodation in property hotpots would also need to be addressed by government legislation, ensuring these desirable little residences were only occupied by their owners and not gobbled up by absentee investors.

Author: Robert Kronenburg, Roscoe Professor of Architecture, University of Liverpool

Budget 2017: government still [just] tinkering with housing affordability

From The Conversation.

It’s unsurprising that in the lead-up to this year’s federal budget there was a lot of discussion about housing affordability as its centrepiece. Over the past 20 years price-to-income and price-to-rent ratios have doubled. Sydney’s price-to-income ratio is over 12, making it the second-least-affordable city in the world. Melbourne is in fourth place.

And in a budget tableau as bland as this one, it wouldn’t have taken much to really play up the housing affordability policies.

Yet the measures in this budget involve not much more than tinkering.

On the minus side, the biggest announcement was a “first home super saver scheme”, which would allow voluntary contributions of A$15,000 per annum and A$30,000 in total (per person if in a couple) to superannuation for prospective first home buyers from July 2017. These could be withdrawn and taxed at 30 percentage points below the normal marginal rate and used for a deposit.

This will cost the government A$250 million over four years and do absolutely nothing to help first home owners. We have seen this movie before, with 50 years of first home owner grants in one form or another. All that happens is that this subsidy goes into the price of existing housing. Sellers benefit, buyers get no joy.

It’s bad economics, somewhat costly, and a cruel hoax on prospective home buyers who are struggling with an out-of-control housing market.

But the biggest minus of all was the absence of any measure whatsoever to address negative gearing and CGT exemptions for rental properties. Sorry, there is one: you now won’t able to deduct an airfare to the Gold Coast to “inspect” your rental property. The government has boxed itself in on this, with Labor having taken a plan to the last election to tackle both of these issues (full disclosure, the Labor plan bears a good deal of resemblance to my McKell Institute plan).

Nonetheless, it is reflective of the state of our politics that the one thing that could really help the most (and which the PM has agreed with very publicly in the past) is off the table.

But the measures aren’t all bad. On the plus side, there were incentives for people over 65 to downsize by allowing A$300,000 of the proceeds of a sale of their main residence to go into their superannuation, above the controversial A$1.6 million cap announced in last year’s budget.

Will the budget encourage older Australians to downsize? Maybe. One measure of how powerful an incentive it will be is that it costs only A$30 million over the four-year forward estimates period. This is not a big government spend.

It’s also unclear whether it will be a large enough financial incentive to overcome the emotional and psychological barriers to moving from the family home after many years in it. There was also a conspicuous absence of reforms to stamp duty, which is a major impediment to downsizing.

There was also good news on affordable housing with the establishment of the National Housing Finance and Investment Corporation (NHFIC). It will provide A$63.1 million over four years to operate a so-called “bond aggregator” that aims to provide cheaper financing for community housing providers. This is a good idea that should have a positive effect, and help address the high cost of funds that often plagues financing of housing for low-income earners.

Consistent with the recent populist policy announcements by this government, foreign purchasers of Australian properties were targeted in this budget. There will no longer be a capital gains tax (CGT) exemption for primary residences of foreign and temporary tax residents, and the grandfathering will only last until June 30 2019. There will also be a lower threshold for CGT withholding (A$750,000, down from A$2 million) on foreign tax residents, and the rate will be increased from 10% to 12.5%.

There were some wishy-washy words about the crucial issue of housing supply. The government has definitely identified the key role that supply plays. They are proposing a variety of “city deals” to provide incentives for zoning reform — especially in western Sydney. That’s all good, but whether it is anything more than the budget-summary feel-good headline – “Working with the states to deliver planning and zoning reform” – remains to be seen.

There was also the announcement of a tax on foreign owners who leave their properties vacant. This is supposed to raise A$16.3 million over four years — which is a rounding error in the scheme of things.

We had a housing affordability crisis before this budget, and we will have one after it. If the first step to recovery is acknowledging that one has a problem, then the government is still on step one.

Author: Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW

The Budget And Housing

The Budget included a range of measures to address housing affordability with both supply and demand measures.  Foreign investors will be hit with charges on vacant property. First time buyers will get tax breaks for saving for a deposit. There are minor tightening of negative gearing relating to travel and equipment, but otherwise remains intact.

Reducing pressure on housing affordability

Championing the great Australian dream of home ownership

The Government is providing practical solutions across the entire housing spectrum; from Australians struggling to put a roof over their head through to older Australians looking to downsize.

Access to secure and affordable housing can improve education and health outcomes, increase workforce participation and reduce welfare dependency.

However, an extended period of price growth, particularly in Sydney and Melbourne, is creating pressure across the housing spectrum.

Potential first homebuyers are struggling to transition into home ownership and are staying in the rental market for longer. This has put upward pressure on rental prices.

As a result, households on lower incomes are finding it increasingly difficult to find affordable rental properties. This has led to longer waiting lists for public and community housing.

Improving housing affordability right across the housing spectrum must be a key objective for governments at all levels. There is no silver bullet. The response must be well targeted and coordinated.

A key factor behind rising prices in some major cities has been supply failing to respond to demand. A period of weak construction activity in the mid-to-late 2000s left these cities undersupplied, resulting in pent-up demand.

Despite record housing supply in recent years, more homes are needed for Australians. Not just for homeowners, but for renters, key workers such as nurses, teachers and police officers who can’t afford to buy or rent and those on lower incomes.

The current National Affordable Housing Agreement (NAHA) lacks accountability and transparency. Despite the Australian Government providing the States with over $9 billion since 2009, the NAHA has failed to achieve its objectives.

The Government is providing national leadership to work together with State and Territory governments to reduce pressure on housing affordability.

This Budget contains a comprehensive and targeted reform plan to improve outcomes across the housing spectrum.

A targeted and comprehensive plan

Unlocking supply

The Government will help boost the supply of housing and will encourage a more responsive housing market by:

  • Providing $1 billion to fund critical infrastructure, such as water infrastructure, that will speed up the supply of housing
  • Working with the States to deliver planning and zoning reform that speeds up development
  • Releasing suitable Commonwealth land, starting with Defence land at Maribyrnong in Melbourne, for housing development
  • Investing more than $70 billion from 2013-14 to 2020-21 on transport infrastructure across Australia
  • Specifying housing supply targets in new agreements with the States and Territories

Creating the right incentives

The Government is creating the right incentives to improve housing outcomes, including:

  • Helping first home buyers to save a deposit through voluntary contributions into superannuation
  • Reducing barriers to downsizing to free up larger homes for families
  • Improving the targeting of housing tax concessions
  • Strengthening the capital gains tax rules so that foreign investors pay their fair share of capital gains tax
  • Reforming foreign investment rules to discourage investors from leaving their property vacant
  • Supporting economic growth and jobs to boost real wages

Improving outcomes for those most in need

The Government will improve outcomes in social housing and homelessness by:

  • Requiring States and Territories to meet social and affordable housing targets under revised funding arrangements
  • Providing $375 million to give funding certainty to providers of homelessness services
  • Establishing a National Housing Finance and Investment Corporation to operate an affordable housing bond aggregator
  • Providing tax incentives to increase private investment in affordable housing

Helping first home buyers

Many Australians, particularly younger Australians, are finding it harder to save for their first home.

The Government will make this savings task easier by allowing first home buyers to build a concessionally taxed deposit inside superannuation through the First Home Super Saver Scheme.

From 1 July 2017, first home buyers can contribute up to $15,000 per year and $30,000 in total in voluntary contributions to their superannuation account, within existing contribution caps, that can then be withdrawn for their deposit. These savings will benefit from the tax advantages of superannuation. Contributions and earnings will be taxed at only 15 per cent, rather than at marginal rates, and withdrawals will be taxed at marginal rates less 30 per cent. Both members of a couple can save within the cap and then combine savings for a single deposit.

Boosting Louise and Craig’s first home deposit

Louise earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and the deemed earnings on those contributions. After withdrawal tax, she has $25,760 that she can use for her deposit. By using this scheme, Louise has saved around $6,240 more for a deposit than if she had saved in a standard deposit account.

Louise’s partner, Craig, makes the same income and salary sacrifices $10,000 annually to superannuation over the same period.

Together, after 3 years, Louise and Craig have $51,520 for their first home, $12,480 more than if they had saved in a standard deposit account.

Reducing barriers to downsizing

Older Australians will be encouraged to downsize and free up housing stock. These homeowners will be given greater flexibility to contribute the proceeds of the sale of their home into superannuation. Downsizing frees up larger homes for younger families.

From 1 July 2018, people aged 65 and older will be able to make a non-concessional contribution of up to $300,000 to their superannuation after selling their home. This will be in addition to any other contributions they are eligible to make.

Helping George and Jane downsize

George and Jane, both retired and aged 76 and 69, sell their home to move into more appropriate accommodation. The proceeds of the sale are $1.2 million. They can both make a non-concessional contribution into superannuation of $300,000 from the sale proceeds ($600,000 in total), even though Jane no longer satisfies the standard contribution work test and George is over 75. They can make these special contributions regardless of how much they already have in their superannuation accounts.

Tightening foreign investor rules

The Government will stop foreign and temporary tax residents from claiming the main residence capital gains tax exemption when they sell their Australian property.

To reduce avoidance of capital gains tax in Australia by foreign residents, the Government is bolstering the integrity of the foreign resident capital gains tax withholding system by increasing the rate from 10 per cent to 12.5 per cent and reducing the threshold from sales valued at $2 million or above to $750,000 or above.

Helping private renters

A new annual charge of at least $5,000 will apply to new foreign-owned properties left vacant which will free up more rental housing stock.

The Government will also work with the States and Territories to develop standard long-term leases that offer more security to renters.

Improving regulator tools to address housing risks

The Government is ensuring that the Australian Prudential Regulation Authority (APRA) is able to respond flexibly to financial and housing market developments that pose a risk to financial stability. This includes giving APRA new powers over the provision of credit by lenders that are outside the traditional banking sector.

The Government also recognises that housing pressures and risks may not be the same in markets across Australia. For this reason, the Government will make it clear that APRA has the ability to use geographically-based restrictions on the provision of credit where APRA considers it appropriate.

Better targeting tax deductions

The Government will improve the integrity of the tax system by disallowing accommodation and travel deductions for residential rental property and by limiting depreciation deductions for the plant and equipment forming part of residential investment properties.

Together with changes to foreign investor rules, these changes will raise $1.4 billion over the forward estimates period.

Building more homes

Boosting supply and speeding up the delivery of new housing

National Housing Infrastructure Facility

The high costs of building critical infrastructure, such as roads and water networks, can delay the commencement of housing developments and slow the supply of new homes.

A $1 billion National Housing Infrastructure Facility will be established to provide a range of financing options to local governments. This will allow councils to address infrastructure bottlenecks that impede development and will bring forward the supply of new housing.

Unlocking Commonwealth land

The Government is contributing to the supply of housing by making sure Commonwealth surplus land holdings are put to better use, including for building new homes.

More than 127 hectares of surplus Defence land in Maribyrnong will be made available for housing and employment hubs. This could support up to 6000 new homes – less than 10 kilometres from the Melbourne CBD.

The Government will work with the Victorian and local governments to ensure the right infrastructure is in place, so that this land can be developed as fast as possible.

The Government is developing an online registry of Commonwealth land holdings. This will allow other levels of government, private businesses and community groups to bring forward proposals to put the land to better use, including for housing development.

Reforming State Payments

The current National Affordable Housing Agreement is not achieving its objectives. The Government will establish a new National Housing and Homelessness Agreement with State and Territory governments that is outcomes-based and reduces pressure across the housing spectrum.

The new national agreement will reward States that meet housing supply targets that better keep pace with demand, including targets for social and affordable housing. New housing that is offered exclusively to first home buyers will be encouraged.

The Government will bring forward and increase the supply of new homes by rewarding state land use planning reforms that speed up development application processes and allow for increased density in appropriate areas.

Better connecting home and work

The Government is committing more than $70 billion to infrastructure from 2013-14 to 2020-21 to reduce congestion, grow regional communities and better connect home to work.

In this Budget, the Government is establishing a $10 billion National Rail Program to fund priority regional and urban rail investments. Funding will also be provided for up to three business cases for infrastructure projects that will deliver faster rail connections between major cities and major regional centres.

The Government is working with State, Territory and local governments on City Deals that make cities better places to live and do business in.

The Government is working with the New South Wales and local governments on a Western Sydney City Deal that will help ensure the housing needs of the region are met.

The HIA has commented:

The focus on housing in tonight’s Budget is an important step in addressing the complex housing affordability challenge that Australia faces according to Housing Industry Association.

Graham Wolfe, HIA Deputy Managing Director said “the Budget’s housing focus will send important signals to state and local governments and the community that the Government is serious about meet the challenge of delivering more affordable housing

“There are no simple solutions but providing well targeted assistance to help first home buyers save for their first home and to providers of community housing through the ‘National Housing Finance and Investment Corporation’ will make a difference.

“Although not an affordability measure, the incentives for ‘downsizers’ will also help stimulate the supply of new housing more appropriate to the needs of our seniors.

“Much of the work to improve housing affordability rests with state and local governments and the Budget has made significant commitments to encourage action. The National Housing Infrastructure Facility has $1billion behind it is more than just window dressing.

“Linking the National Housing and Homelessness Agreement’s $1.8 billion to the states and local governments delivering improved housing supply and better planning systems is a significant and welcome reform.

“The ‘city deals’ expansion into smaller scale projects is also a welcome development: the big ticket projects are important but much can be achieved by removing obstacles to more efficient delivery of homes.
“However HIA is concerned about the negative impacts on residential building from the Budget’s measures on foreign investment.

“Plans to tax vacant homes, limit the share of foreign investment in new projects and increase foreign investor duties all send exactly the wrong signal to potential investors in Australia. Barriers to investment are not productive for the building industry or the economy more broadly; investment needs to be encouraged.

“HIA would urge the Government to build on the Budget’s initial steps towards more affordable housing by making this a standing item on the COAG agenda.

“In the meantime HIA will continue to urge the Government to undertake a thorough national inquiry into housing affordability and establish a mechanism for the regular monitoring of the crucial supply of land for the residential building industry”, Mr Wolfe concluded.

Government out of touch on housing policies ahead of budget: poll

From The Conversation.

Australians are concerned about housing affordability, so much so that 45.4% say they would be willing to see the value of their home stop growing to improve the situation, only 31.8% of those polled wouldn’t. An ANU poll shows 51.7% of Australians are also in favour of removing tax concessions like negative gearing.

The poll surveyed 2,513 people (representative of the population) and found 63.6% were willing to see an increase in supply of public housing. Only 32.3% are opposed to relaxing planning restrictions.

With these numbers in mind, it is perhaps surprising that state and federal governments have done so little of any substance in housing policy for decades, if anything they’ve contributed to the problem rather than improved the situation.

Potential policy changes that many believe will improve housing affordability, including removing or reducing tax incentives such as the capital gains tax discount or removing supply impediments, have all been considered too politically difficult by the current government.

The government has justified this by playing to the fear that the value of people’s home may decline or that more liberal planning arrangements may mean that new buildings may spoil the look and feel of local neighbourhoods.

The latest ANUpoll shows Australians are very concerned that future generations may be locked out of home ownership. Three quarters believe home ownership is part of the Australian way of life.

In terms of their own investments we found that nearly 68% of homeowners cite emotional security, stability and belonging as a reason for becoming a homeowner. In terms of security factors, 51% cite financial security, 42% refer to “renting is dead money” and 41% cite security of tenure and being able to “bang nails in the wall”.

Of those families who have an investment property (17% in this poll) the primary motivation for the investment was a “secure place to store money” (27.4%) closely followed by rental income (24.3%). Only 11.9% cited negative gearing as the primary motivator and 13.7% were motivated primarily by the capital gains discount.

Housing remains easily the most popular investment vehicle, with 30% saying their preferred investment for spare cash would be an investment property, followed by 18.5% preferring to upgrade their own home. Only 12.6% preferred shares as an investment.

In spite of recent talk of a housing bubble the general population is not particularly concerned with immediate price drops, with 85% expecting house prices to rise over the coming five years. Only 5.4% expect prices to fall and just 1.7% expect prices to decrease a lot.

If interest rates were to increase by 2 percentage points, 6.4% of mortgage holders expected to be in “a lot” of financial difficulty and 16.7% in “quite a bit”. Only 27.9% would be in no difficulty. While financial difficulty does not mean default, in mortgage markets it may not take a large share of loans to default to cause financial problems for an economy.

As pointed out earlier negative gearing was the least cited reason for property investment which suggests removing the incentive would at least not make a dramatic difference to the level of housing investment in Australia.

The ANUpoll shows that the public are concerned about housing affordability and where policy is directed at improving affordability they are likely to be supportive. The policy options, be they demand side – reducing tax incentives, or supply side – building more dwellings and/or relaxing planning restrictions, are available, but greater political nerve may be required to undertake such options.

Author: Ben Phillips, Associate professor, Centre for Social Research and Methods (CSRM), Australian National University

Budget 2017: Prepare to be disappointed on housing

From The New Daily.

Despite all its huff and puff on housing, a senior economist has warned voters the government will disappoint on the one reform almost everyone wants.

Professor Richard Holden said it would be a “real shame but no surprise” if Tuesday’s federal budget failed to curb tax perks for property investors.

“There is now consensus that there should be a move away from negative gearing and to prune back the capital gains discount. I think everyone agrees except the government and maybe the Property Council,” he told The New Daily.

“It’s very hard to find anybody else. You’ve got Jeff Kennett, John Hewson, Malcolm Turnbull before he became Prime Minister. Everyone seems to agree it’s a bizarre system that’s driving up prices.”

What’s in the housing package? Click to find out

After haemorrhaging support to Labor by doing nothing to help first home buyers in his pre-election 2016 budget, Treasurer Scott Morrison spent the end of last year swearing he’d focus on housing affordability this time around.

He’s been forced to walk back some of that rhetoric, as policy options evaporated under pressure from Labor, interest groups and the Abbott faction.

What hasn’t changed is Mr Morrison’s pledge not to touch negative gearing. But he’s been less emphatic on the capital gains tax discount, which allows landlords to pay tax at their marginal rate on only 50 per cent of the capital gains they realise when they sell a property.

A wide array of experts, including Richard Holden, agree these tax perks favour wealthy investors, and contribute to the difficulty of young Australians entering the property market, at least in Sydney and Melbourne.

A new survey by CoreLogic, a property data firm, found that 87 per cent of non-home owners are concerned about affordability; 30 per cent are looking to inheritance or parents to help them buy; and 62 per cent living with parents say they can’t afford to move out. It surveyed 2010 people aged 18 to 64.

By CoreLogic’s estimate, houses cost 7.2 times the yearly income of an Australian household, up from 4.2 times income 15 years ago. And a 20 per cent deposit costs 1.5 years of household income, up from 0.8 years.

Professor Holden was more enthusiastic about incentives for older Australians to downsize to smaller homes, especially if that involves a stamp duty discount.

“Stamp duty is like the worst tax in the history of the world and everyone with a minute’s economic education thinks it should be replaced with a land tax, so anything that pushes in that direction is a good idea.”

However, if the incentive allowed wealthy individuals to exceed the superannuation balance cap, that “would be a concern, depending on how it’s structured”.

Professor Holden also praised the government’s push to invest more in affordable rental housing: “The idea that housing affordability bites at the very lowest end is a really big deal.”

But he rubbished the government’s proposal to offer subsidised savings account to help first home buyers save a mortgage deposit.

“We saw the government float the idea of accessing super. Now, myself and Saul Eslake and others all came out vociferously and angrily against that. I don’t know if it was causal, but they backed down,” Professor Holden said.

“But now they’re talking about tax-preferred savings accounts for first home buyers, and for the life of me I can’t understand why they can’t seem to get through their heads that anything of that nature is just boosting demand.”

Daniel Cohen, co-founder of lobby group First Home Buyers Australia, said he disagreed with the view that subsidised savings accounts would only push up prices.

“As a standalone policy, they are correct, which is why we want to see policies that are also decreasing demand from investors, and we want to see affordable supply also increase,” Mr Cohen told The New Daily.

“What economists are not considering, I feel, is that first home buyers still have a deposit hurdle, and with the current costs of living, average wages and stamp duty, that is a really big hurdle.”

He said the accounts would act as “financial literacy” to encourage young Australians who might not have considered it to save for a home.

For Mr Cohen, the biggest budget disappointment would be no reform on negative gearing and capital gains.

Why older Australians don’t downsize and the limits to what the government can do about it

From The Conversation.

Encouraging senior Australians to downsize their homes is one of the more popular ideas to make housing more affordable. The trouble is, incentives for downsizing would hit the budget, but make little difference to housing affordability.

It sounds good: new incentives would encourage seniors to move to housing that better suits their needs, while freeing up equity for their retirement and larger homes for younger families.

But the reality is different. Research shows most seniors are emotionally attached to their home and neighbourhood and don’t want to downsize.

When people do downsize, financial incentives are generally not the big things on their minds. And so most of the budget’s financial incentives will go to those who were going to downsize anyway.

Financial barriers to downsizing

There are three financial hurdles to downsizing. Downsizers risk losing some or all of their Age Pension, because the family home is exempt from the pension assets test, but any home equity unlocked by downsizing is not.

Downsizers also have to stump up the stamp duty on any new home they buy. For a senior purchasing the median-priced home in Sydney that’s now A$32,000. Finally earnings from the cash released are taxed, whereas capital gains on the home are not.

The Turnbull government has flagged the possibility of financial incentives in next week’s federal budget for superannuants and pensioners to downsize their home.

One proposal would exempt downsizers from the A$1.6 million cap on super balances eligible for tax-free earnings in retirement, or from the A$100,000 annual cap on post-tax contributions. But this would benefit only the very wealthiest retirees – just 60,000 retirees have super fund balances exceeding A$1.6 million.

More seniors would benefit from a proposal to exempt them from stamp duty when purchasing a smaller home. And many would benefit from a Property Council proposal to quarantine some portion of the proceeds from the pension assets test for up to a decade.

The trouble with all these proposals is that they would hit the budget – because everyone who downsized would get the benefits – but they would not encourage many more seniors to downsize.

Staying – or downsizing – is seldom about the money

Research shows that for two-thirds of older Australians, the desire to “age in place” is the most important reason for not selling the family home. Often they stay put because they can’t find suitable housing in the same local area.

In established suburbs where many seniors live, there are relatively few smaller dwellings because planning laws restrict subdivision. And even if the new house is next door, there’s an emotional cost to leaving a long-standing home, and to packing and moving.

And so, few older Australians downsize their home. According to the Productivity Commission, about 20% aged 60 or over have sold their home and purchased a less expensive one since turning 50. Another 15% have “strong intentions” to do so in the future.

When older Australians do downsize, their decision is dominated by non-financial considerations, such as a preference for a different style of house and living, a concern that it is getting too hard to maintain the house and garden, or the loss of a partner.

These emotional factors typically dwarf financial considerations. According to surveys, no more than 15% of downsizers are motivated by financial gain. Stamp duty costs were a barrier for only about 5% of those thinking of downsizing. Only 1% of seniors listed the impact on their pension as their main reason for not downsizing.

There are better and cheaper ways to encourage seniors to downsize

If governments do want to use financial incentives to encourage downsizing, budget sticks would be cheaper and fairer than budget carrots. Even if they have little effect on downsizing rates, at least they would contribute to much-needed budget repair and economic growth.

The federal government should include the value of the family home above some threshold – such as A$500,000 – in the Age Pension assets test. This would encourage a few more seniors to downsize. More importantly, it would make pension arrangements fairer, and contribute up to A$7 billion a year to the budget.

Asset-rich, income-poor retirees could continue to receive a full pension by borrowing against the value of the home until the house is sold. The federal government would then recover the cost from the proceeds of the sale. If well designed, this scheme would have almost no effect on retirees – instead it would primarily reduce inheritances.

State governments should abolish stamp duties on property, and replace them with a general property tax, as the ACT Government is doing. This would encourage downsizing, although only at the margins.

But the real policy justification is that it would help working age households to take a better job that’s only accessible by moving house, and so improve economic growth. It’s a big prize: a national shift from stamp duties to broad-based property taxes could add up to A$9 billion a year to the economy.

In short, the downsizing debate is a prime example of how governments prefer politically easy options with cosmetic appeal, but little real effect, on housing affordability. If they’re serious about making it easier for young Australians to buy a home, they will have to make tougher policy choices.

Authors: Brendan Coates, Fellow, Grattan Institute; John Daley, Chief Executive Officer, Grattan Institute