This time of year is always a busy one in the policy space with the announcement of the federal budget along with a raft of state and territory budgets right around the country.
Not surprisingly, housing affordability is at the forefront of the policy agenda, and the budgets that have been so far announced reflect this heightened sense of priority. The housing affordability challenge has resulted from the sharp increase in dwelling prices across the major cities over the past five years or so. This has occurred at the same time as a major deceleration of income growth in the economy, which has taken the pace of growth to its lowest in about two decades.
The federal budget didn’t disappoint in the housing space, being packed with measures designed to lead to better housing affordability outcomes. Encouragingly, the federal government seems to appreciate that the only sustainable solution to the affordability challenge lies on the supply side and through the delivery of the requisite volume of housing stock at lower cost.
In this vein, the federal budget proposed a number of measures including the creation of a $1 billion National Housing Infrastructure Facility. A commitment was also given to identify Commonwealth land holdings that might be suitable for residential development. While new building will always be the main source of dwelling supply, the budget has also tried to tap into the significant amount of stock that can be released through downsizing by retirees. In this respect, up to $300,000 of the proceeds the sale of a home for downsizing purposes will be eligible for more favourable treatment if contributed to the seller’s superannuation fund.
The budget also included specific measures aimed at incentivising new dwelling supply at the affordable end of the market in particular. A larger capital gains tax discount is to be provided to investors in affordable housing and greater encouragement for Management Investment Trusts to invest in affordable housing is also to be provided for. The establishment of a National Housing Finance & Investment Corporation is also being planned in order to facilitate the delivery of larger volumes of affordable housing supply.
Despite the budget’s emphasis on the supply side, there are also measures to address the demand in the market. Not surprisingly, these have again been aimed at foreign investors. There are measures to further tighten regulations around foreign investor participation in Australia’s housing market as well as effectively ‘fining’ foreign investors who leave dwellings vacant for more than six months of the year.
While targeting foreign investors is likely to prove popular amongst the many first home buyers struggling to access the market, it is important to emphasise that foreign investor demand is a vital conduit for bringing new developments into existence. Foreign-owned dwellings are also a central pillar of supply to the rental market and restrictions here are only likely to exacerbate pressures in rental markets like those of Sydney and Melbourne. A well-functioning rental market is important from the perspective of attracting and retaining migrant labour in the local jobs markets – a crucial ingredient for long-term growth and development.
On the demand side, the federal budget has also sought to give first home buyers a leg up through the creation of First Home Super Saver accounts which allow prospective buyers to contribute up to $30,000 toward the deposit for their first home deposit at a more favourable tax rate.
The past month has also seen state governments turn their budgetary fire on residential investors. Victoria’s state budget for 2017/18 involved the introduction of a one per cent levy on investors leaving their properties unoccupied for large portions of the year, as well as the application of a land tax surcharge for foreign investors in the state. In early June, the NSW government announced that the stamp duty surcharge on foreign investors would be doubled from four per cent to eight per cent – a heavy impost in a state where dwelling prices are easily the highest. The risk is that these interventions will only result in stresses for those who depend on the rental market for their housing needs and diminish the amount of new home building in markets where shortages on the rental market are most acute.