John McGrath – What we should do about housing affordability
The Federal Government’s 7-month inquiry into housing affordability is now complete, with 16 recommendations made in its report to improve housing supply and affordability.
One of the recommendations is allowing first home buyers to use their superannuation as security for a home loan. So, instead of a young buyer giving the bank the usual 20% deposit in cash, the bank would accept the buyer’s superannuation assets as collateral.
The report says this would remove the “largest barrier for home buyers; being the deposit”.
I think any assistance that can be provided to first home buyers to get themselves on the first rung of the property ladder should be considered. However, allowing borrowers to utilize their superannuation as additional security doesn't come without the obvious risks of losing part of your super should the market have a significant correction.
The other issue is that almost every incentive for first home buyers inevitably puts upward pressure on prices when, in fact, we need to reduce pressure on prices. The report acknowledges this and notes that housing supply would have to increase alongside this policy “otherwise, an increase in households’ ability to borrow would likely increase property prices”.
My preferred solution would revolve around the release of more land, plus reducing the statutory costs associated with development and a swifter development approval process.
If the government provided more cost-effective, expedient development opportunities for developers to build, and release more state-owned land for sale, it would ease some of the pressure and rebalance supply and demand.
This coupled with a sensible review of rezoning opportunities in areas that would cope with higher density living would likely improve affordability significantly. The average new apartment or land subdivision has hundreds of thousands of dollars of government costs embedded in it so we need to find a way to channel those savings directly to the buyers.
Meantime, we all know a federal election is coming some time on or before May 21. Despite the housing affordability report noting that schemes that increase buyers’ borrowing capacity are likely to push up prices, both sides of politics are promising to do exactly that.
Labor went first by announcing that, if elected, it will introduce a new Regional First Home Buyer Support Scheme that will pretty much operate under the same rules as the existing First Home Loan Deposit Scheme (FHLDS), with 10,000 places offered but only to regional first home buyers. They will be able to buy or build a new home or purchase an established one.
To jog your memory, the existing FHLDS allows first home buyers in Australia’s cities and regions to buy a new or established property (under certain price caps) with a 5% deposit and a government guarantee on the rest of the 20% deposit that the banks require. Usually, 10,000 places are offered per year. Under Labor’s plan, the FHLDS will continue as is and the regional scheme will run alongside it, giving more opportunity to regional first home buyers.
Then, in last week’s budget, the Coalition matched Labor’s offer but with a couple of key differences – it will be open to non-first home buyers and permanent migrant residents in the regions as well, and it will be limited to new homes or land.
But wait, there’s more. Here’s a quick rundown of what the Coalition is promising:
- Instead of offering 10,000 places per year under the FHLDS – to be renamed the First Home Guarantee – the Coalition will offer 35,000 places to first home buyers purchasing new or established homes in any area of the country
- They will expand the Family Home Guarantee to 5,000 places per year. This scheme allows single parents (first or non-first home buyers) to buy with a 2% deposit
- The new Regional Home Guarantee will also offer 10,000 places – same as Labor.
So, no matter which major party gets elected, there will be boosted support for property buyers across the country.