The 2017 budget handed down last week by the Federal Treasurer had a raft of measures in it that is designed to help home buyers into their first home. Will it all work? Will homes become affordable again? There is no simple answer to these questions so I’ll deal with each new announcement one at a time.
Firstly, let me start by stating the obvious. Any politician that makes existing homes more affordable will be upsetting quite a lot of current homeowners. They will be voted out of office at the next election. So, don’t expect any radical changes from either side.
First Home Super Saver Scheme
The new super saver scheme will allow first-time buyers to put up to $15,000 a year, up to a maximum of $30,000 under the scheme, into their superannuation funds.These funds can be withdrawn for a home deposit.I applaud this change and it is long overdue. However, it will make almost no difference to the price of housing in our capital cities.
Think about it. $30k is not even the stamp duty on many houses sold in Sydney, Melbourne, Canberra or Brisbane.
Only 50% of a new development Can be sold to foreign buyers
As the banks had already excluded many foreign buyers (by excluding foreign income for servicing) I’m not sure how much difference this change will make. It smacks of populism to cater to the Hansonites to me. I will call this as a slight difference.
Vacant Property Tax on Foreign Investors
If the tax was big enough it would have an effect. But charging up to $5,000 annually for an empty home is going to be regarded as a cost of doing business in Australia. It is also uncertain as to how this will be administered. Also, I’m not sure how large this problem is and neither does the government. It appears to be policy based on rumour. Another one for the Hansonites I’m afraid and it will have no real bearing on the cost of residential property.
Investors Claiming Travel Allowance to Cease
This is a sensible initiative as it’s been rorted but it will have no impact on property prices or the affordability of homes – as it generally affects properties in holiday areas. Yes, people in Sydney and Melbourne investing in Brisbane will be slightly worse off but not enough to make a difference.
Incentives to downsize for Retirees
Australians aged over 65 who sell their home that they’ve occupied for 10 years or more will be able to put up to $300,000 in sale proceeds into their superannuation.This incentive to downsize is expected to help free up larger homes for families to move into.This may be true but will it affect the cost? If enough retirees decided to sell at once and flooded the market with large homes then that would have an effect. But if the retirees home price is reduced by $300k or more the incentive is cancelled out.
Tax on Banks Liabilities
While this announcement was not part of the initiatives to impact housing, I’m including it here. This will have an impact on peoples’ purchasing power as banks will have to pass this on. Unless the Government changes Corporations Law so that directors are no longer responsible for acting in the interests of shareholders, this cost will be passed on.The government can’t tout how the company tax cuts are creating jobs on the one hand and then tax an industry that is one of the country’s largest employers. But that’s exactly what it is proposing and it appears to have bi-partisan support.It will negatively impact banks’ share price but whether or not it will make any difference to property prices is doubtful.
WHAT’S NOT INCLUDED THAT WILL IMPACT PROPERTY PRICES
- Initiatives to increase supply
- Abolition of or a cap on negative gearing
- Changes to capital gains tax on property
I will not discuss these as they’re not on offer. The first two are not difficult to do and I would agree that their introduction would make a tremendous difference to home prices. However, the last would ensure that property would be the only investment that would incur a higher CGT tax rate – this would be unfair. But it would probably reduce demand by investors.
What the Government appears to be missing is that many investors do not buy residential property for the yield – most of these changes are targeted at reducing yield – which in some markets is already lower than 3%. Property investors are counting on the capital gain over the long term. At the moment this can only be impacted by market forces. Nothing in this budget will affect investors reasons for investing in residential property.
But with auction clearance rates falling, the market may have already done much of the heavy lifting.