Prior to the release of Tuesday night’s budget, much of the debate around housing affordability centred on first home buyers tapping their super to fund deposits. This was not a popular idea.
But the government did it anyway, just not in the way any of us expected.
A brand new First Home Super Saver Scheme, to be administered by the ATO, will enable first home buyers (FHBs) to make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home.
This will allow FHBs to piggyback off the growth in their super to save for a deposit quicker than they would by leaving their money in the bank. The government believes the scheme could boost FHB home deposit savings by at least 30 per cent.
However, NAB’s global head of research Peter Jolly pointed out at a budget breakfast yesterday that the scheme won’t actually fix the housing affordability problem.
“This actually adds to demand,” he said. “It doesn’t actually solve the other big issues in any way.”
Adviser Ratings founder and managing director Angus Woods isn’t convinced that anything in the budget really goes far enough for FHBs, given the fact that wages have been stagnant for quite some time.
However, he does believe the scheme could “put a cap” on the aggressive price rises.
The missing piece
History has shown that previous measures to boost FHB demand through deposit schemes and grants have created more heat in the housing market, worsening the affordability problem.
The government’s new idea around super contributions, however, should put to rest any fears over inflationary problems. But that doesn’t mean everyone is keen on the idea.
Mortgage Choice boss John Flavell criticised the government’s plan, arguing that it will do little to help new homebuyers in Sydney and Melbourne.
“The first home buyer super saver scheme is unlikely to have a huge impact. At best, a couple who salary sacrifice a portion of their income into their super might be able to scrape together enough money to pay for the stamp duty charged in markets like Sydney and Melbourne,” he said.
“There is nothing to suggest that this new scheme will deliver a different result to the spectacularly unsuccessful First Home Saver Account initiative that was launched by the Rudd government in 2008 and withdrawn from the market in 2014."
While housing affordability remains a national issue, booming prices in Sydney and Melbourne have taken centre stage in the debate. At the same time, we have seen median dwelling prices in Perth and Darwin fall in recent years.
Yet every capital city in Australia, in fact every region, faces the same interest rates, negative gearing benefits and capital gains tax rules.
As NAB’s Peter Jolly points out, “there is something else going on other than those things that are cited as being issues for housing.”
The issue is one of supply and demand.
“One of the key drivers of demand has been this,” Mr Jolly said. “Australia’s population is growing at an extraordinarily quick pace of 1.5 per cent per year or 350,000 people a year.
“As NAB’s chairman Ken Henry likes to say, it is ‘a Canberra per year’ that we need to house and educate and give medical services to.
“When we look around the country, the places where dwelling prices have been rising quickly are where population growth has been growing most quickly as well.”
The RBA has taken action with monetary policy and APRA has introduced macroprudential measures, but none of these issues solve the supply-demand issues, Mr Jolly said.
“If you look at what is happening in Australian housing, the fundamental issue is we are not building enough dwellings relative to the population,” he commented. “The RBA and ASIC and macroprudential policy – they don’t change the real outcomes. It’s policies at the top that changes real outcomes.”
Adviser Ratings’ Mr Woods questioned whether the government has done enough on the supply side to actually incentivise and open up more land space for new development.
“The supply side is partially being addressed, but it's also partially being quashed, and I think it's the supply side ultimately in making new housing space more available that will be the biggest factor in helping FHBs get into the market,” he said.
“I think it certainly helps outside of the Sydney and Melbourne regions but at this stage, I don't think it addresses the major metropolitan regions, from our early analysis of the budget.”
On the other hand, AMP Capital chief economist Shane Oliver argues that the supply measures outlined by Treasurer Scott Morrison are “key initiatives” of the budget, which have the potential to have a significant impact in two to three years if delivered upon.
“There was talk of more commitment to setting targets with the states in terms of property supply, that might relate to zoning or land release for example, and rewarding states who deliver against those targets in some way... to me that's the key measure in the budget.
“All the other measures, on their own are marginal, [but] taken together may have an impact over time, but the key impact will come if the government achieves what they've committed to do, which is to make arrangements with states to encourage greater supply of housing over time.
“In the absence of anything significant to wind back investor demand, the government has to deliver on supply... to me that's the key.”
New housing initiatives
The government has agreed to release a chunk of ADF land in Maribyrnong, which will now be used for housing. Initiatives have also been announced to boost community housing for low-income households, to be managed by new National Housing Finance and Investment Corporation (NHFIC).
A total of nine measures were announced to improve housing affordability in this year's budget.
AMP Capital’s Mr Oliver believes that while the initiatives might not have a significant short-term impact on the property market and property prices, the impact will become manifest over time.
“On their own, it's hard to get too excited about many of the individual measures, but they will probably help, taken together as a package,” he said.
Infrastructure is key
RBA governor Phillip Lowe recently pointed out that housing affordability is largely an infrastructure issue. Australia is a vast nation with plenty of underutilised land. The problem is accessing these areas.
The government’s plan to establish a $1 billion National Housing Infrastructure Facility (NHIF) is a step in the right direction.
According to budget documents, the NHIF will provide $1 billion over five years to support local governments through a range of options to finance critical infrastructure such as: transport links, power and water infrastructure and site remediation works.
The facility will also provide local governments the opportunity to access up to $600 million in concessional loans, $600 million in concessional investments and $175 million in grants.
HIA’s Graham Wolfe said much of the work to improve housing affordability rests with state and local governments. Critically, he is confident that the NHIF is “more than just window dressing”.
HIA acting chief economist Warwick Temby agreed that the budget’s measures to provide funding for infrastructure for residential development is important.
“Often it’s not big ticket things like inland rail that will help improve affordability. It might be building a bridge somewhere, or fixing up a sewerage system that will release a significant amount of land, so that's a welcome development.”
“[My] initial impression of the budget is that it's a useful step towards improving housing affordability.
“The focus that the government has put on housing in the budget is a really important acknowledgement that we've got a problem that needs solutions, and there are the start of some solutions embedded in the budget measures.”