Budget 2017: The Government Is Still Tinkering With Housing Affordability

Budget 2017: The Government Is Still Tinkering With Housing Affordability

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 These could be withdrawn and taxed at 30 percentage points below the normal marginal rate and used for a deposit.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.

This article was originally published on The Conversation. Read the original article.


  • At the end of it Government gives more assistance to people that buy multiple homes than people trying to buy their first. Given buyers more money just mean sellers raise prices… economics isn’t that hard is it, oh wait, we elected people based on popularity not professional qualifications.

  • When all the first home buyers salary sacrifice and withdraw super, balance of the super companies will erode and they hav to pass the losses onto the customers by increased fees.

    The people who withdraw from super will not have any super savings when they retire so they have to stand in a line for centrelink benefits.

    Banks will pass on their extra costs through increasing interest rates and fees.

    Have to pay 0.5% more tax. Property prices will increase.

    worst budget ever, let’s hope this budget will not get through the senate. As libs doesn’t have senate majority most of them may not pass the bill.
    Also budget

  • When I bought my place, I compared my situation to my dads when he borrowed. We were on pretty much identical incomes, and were paying pretty much identical amounts each fortnight.

    The difference was how much we borrowed, and how easy it is/was to get the loan. He borrowed $60k, with 20% deposit meaning only $12k to save. Not hard. For me, I borrowed $250k, meaning 20% was %50k. Far harder to save.

    Thats the difference between eras – the deposit needed. The loan duration and repayments were the same across eras, it was the ease of getting that which changed. My idea would be to work on that part of it to make it easier for first home owners to buy.

    And I’d do that by using the GST being charged on new properties to be considered part of the deposit – in short, offloading part of the ever increasing deposit requirements to the Government.

    You’d have first home owners driving new properties, which they’ve tried before with various exemptions, and you’d get more people able to at least get their foot in the door as they’d only need half the deposit to meet whats becoming a stricter and stricter requirement.

    Whether or not it has a serious chance of actually working, its something that could at least be considered. Cant be worse than any of the other ideas they’ve tried.

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