Budget 2017: Housing affordability

The 2017 Federal Budget arrived on Tuesday night, and brought with it various policies which will undoubtedly impact on Australian housing affordability. If you ever want to stop eating smashed avocado and save for a house one day, read on.

Arguably, some of the budget’s policies may actually exacerbate the housing crisis. For instance, the much-vaunted levy on Australia’s  Big 4 Banks, for all the Government’s rhetoric, is highly likely to be passed on to customers and thereby increase costs. However, the budget does introduce some interesting ideas.

A combination of cheap credit and an influx of foreign investment into the housing market in Melbourne and Sydney has steadily pushing up the prices of apartments in the CBD and other areas, effectively pricing out some first home buyers.

To address the issue of housing affordability for first home buyers, the Government has proposed the First Home Super Saver Scheme. This allows individuals to make salary sacrifices above their super contributions, which go into their super account but can be withdrawn to make deposits on a house. Furthermore, these voluntary contributions will be taxed only at 15%. However, each individual can only contribute $15,000 a year and $30,000 in total. Withdrawals will be taxed at the marginal rate minus 30% offset.

This somewhat addresses the issue of housing affordability for first home buyers but still does not fully solve it for the most vulnerable, such as young employees. This measure does not sufficiently target young buyers and limits how much they can save.

The budget came down with an iron fist on foreign housing investment. The government has increased the withholding tax from 10% to 12.5% and in addition the threshold for this tax has been reduced from $2 million to $750,000.

The government also introduced a new restriction on housing developers. This mandate prohibits residential developers from selling more than 50% of their new projects to foreign buyers. The government also announced what is known as a “ghost house tax”. This is to address the issue of some foreign buyers purchasing houses in Australia for investment, while leaving them unoccupied. Under the budget, foreign buyers who own a property that is not occupied for at least 6 months of the year will face a fee of $5000.

In a further attempt to deal with supply-side issues, the government increased incentives for older home owners to downsize and thereby open up houses for younger buyers. This took the form of allowing people over 65 to invest the proceeds from sale of their house into their superannuation.  This is estimated to open up 50,000 new houses in the market.

These measures should effectively curb the influx of foreign housing investment into Australia. However, this may have an unintended consequence of reducing development of new housing as the overseas demand for new residencies falls.

Finally, the government announced the National Housing Infrastructure Facility (NHIF), which aims to invest heavily into housing infrastructure such as rail networks, power and water infrastructure, essentially increasing the number of housing locations and speeding up the increase in the supply of housing. A central part of this scheme is to introduce “micro cities” to encourage people to live further from the Melbourne and Sydney CBDs and have access to the same infrastructure. $1 billion will be spent over the next 5 years into the NHIF.

All in all, the budget does attempt to solve the problems created by the housing crisis and it will most definitely reduce foreign demand for houses. The First Home Savers Scheme may marginally increase the affordability of houses for people but policies such as the NHIF may do much more in terms of reducing price pressures. It is important to realise that all these policies will take many years to come to maturity. For instance, the First Home Savers Scheme only allows withdrawals from next year, and the NHIF will take at least five years to develop infrastructure. It will be a while yet before the effects of these policies become visible. Watch this space.