Budget 2017: It’s all about supply and access for first homebuyers

Last night, the Treasurer Scott Morrison unveiled his second budget calling it “fair and responsible”.  One thing is for sure: housing, planning and infrastructure is the centrepiece of this budget.  Macroplan recognise that when it comes to the property industry there is no “silver bullet”, however the budget does provide some sense of purpose and a plan.  Here are some of our key take-outs:

  • It’s all about supply and access for first homebuyers
  • Reforming the Planning System – Here’s Hoping!
  • Transport Infrastructure – The More the Better
  • Foreign Investors Clearly Do Not Vote!
  • The regions have not been forgotten.
  • A collaborative approach marks the start of an innovative new era of policy making

It’s all about supply and access for first homebuyers. 

To assist saving for a deposit, 1st home buyers are to be allowed to put up to $30,000 of pre-tax income (max of $15,000 in any year) into a “1st home buyers savings account” within their superannuation fund, with the money given the same favourable tax treatment as superannuation.

Outside of super, savings is taxed heavily in Australia and is a disincentive to savings. On fixed interest, taxes are applied to nominal returns (real plus inflation) which mean very high tax rates on real returns, which is one reason why The Henry Tax Review recommended lower taxes on interest (and rental) income. This measure is not strictly what the Doctor ordered, being targeted at only one group of savers, but it does treat this savings on an equal footing with super.

What needs to be remembered here is that, compared with earlier generations, the current 25-34 age cohort have invested more years in education (lost work years), have a HECs debt which adds to their marginal tax rate and lowers their capacity to save, and have 10% of their income locked away as forced savings in superannuation – all factors which mean less potential savings for housing and hence less demand for housing. So an incentive for savings should be seen as an offset to these not insignificant disincentives.

The proposal will no doubt be panned by the Grattan Institute which argues for high taxes on non-super savings and which will assert that it will simply lift prices and not benefit these buyers. Sure, it will be positive for demand but, given that supply is NOT totally inelastic, it cannot be the case that it translates one for one to higher prices. 1st home buyers will be better off.

And they will certainly be better off if State and Local Governments heed the RBA Governor’s advice last week, AND get on with the KEY task of making the housing market more elastic (more responsive to demand). The real disadvantage new entrants into the housing market face is that, compared with the past, whereas housing finance was deregulated in the 1980s, the housing supply market has steadily but inexorably become more heavily regulated, creating an artificial scarcity premium.

 

Reforming the Planning System – Here’s Hoping!

In that vein, the Treasurer announced that he would be renegotiating the housing agreements with the States to make it conditional on the States meeting housing supply targets and reforming their planning systems. The Government will establish a $1 billion National Housing Infrastructure Facility to persuade State and Local Government remove infrastructure impediments to developing new homes and apartments on selected sites.  The scheme is described by the Treasurer as “micro” City Deals.  That is a herculean task, given the sclerotic and rigid system it is, but anything that shakes it up has to be worth trying.

There is little the Commonwealth can do directly on actual supply. It has announced an “online Commonwealth land registry will be established detailing sites that can be made available for residential development” and specifically it will be releasing surplus Defence land at Maribyrnong in Melbourne, land for a new suburb that could cater for 6,000 new homes. With supply constraints starting to bite in outer Melbourne, that might help but how long it takes to get to market will be the acid test. Positive but the reality is the big movers need to be the States.

The Turnbull Government will also help deliver tens of thousands of new homes needed in Western Sydney as part of the Western Sydney city deal.  The city deal will focus on local job opportunities, connectivity and liveability. Under the city deal, the Government will offer incentive payments for ambitious planning and zoning reform and deliver more homes in Western Sydney. It will be interesting to see how the objectives of this policy fit against the planning contours contained in the draft district plan. MacroPlan will endeavour to clarify and inform clients on what the Federal Government considers to be ‘worthy reforms’ to be funded as part of the Western Sydney City Deal.

Transport Infrastructure – The More the Better

On housing, the RBA Governor also last week repeated his plea for Governments to invest in transport infrastructure, to thereby create space/supply in areas with transport access, and make Australian cities more workable.

On that score, the Budget includes additional monies for a raft of transport infrastructure which, in time, will make a meaningful addition to supply. There will be naysayers but this will be “good debt”.  The big one is the second Sydney airport which, with a rail link now in planning, will open up the south west and make it more compelling for State and Local Governments to allow development in this area. When you add that to the NSW Government’s aggressive drive on the transport infrastructure, the long term outlook for Sydney is looking a LOT better than a few years ago. But the monies committed to a range of rail/road projects in other cities will also contribute to increasing supply.

Retirees to Downsize?

As predicted, the Government has introduced an incentive for retirees to downsize, by enabling downsizers over the age of 65 to make a non-concessional contribution of up to $300,000 into their superannuation fund from the proceeds of the sale of their principal home. Apart from tax/pension considerations, however, there are a whole bunch of non-financial reasons why retirees choose to stay in the ‘family home’ and not downsize as early as policymakers would like. At the margin, this policy change might see some retirees downsize, but it will be interesting to see whether or not it makes a big difference.

Social Housing Part of the Package

Social Housing is to be bolstered by a bunch of measure – a National Housing and Investment Corporation will be established to provide long-term, low-cost finance to support more affordable rental housing providing; Managed Investment Schemes to invest in affordable housing will be allowed; a higher 60% discount will apply on any capital gains for investors in affordable housing; there will be more vehicles for superannuation funds to invest in affordable housing; and endorsed inclusionary zoning as a solution. Good politics but, given the economics of housing, not clear at the end of the day that a serious amount of private money will be thrown at social housing.

Foreign Investors Clearly Do Not Vote!

Foreign investors have been slugged again – the owner-occupier exemption from capital gains tax has been lifted; a vacancy levy of at least $5,000 will apply on all future foreign investors who fail to either occupy or lease their property for at least six months each year; and the requirement that prevents developers from selling more than 50 per cent of new developments to foreign investors will be restored.

Negative gearing is itself untouched but claimable expenses (travel to properties, depreciation) have been pared back which will reduce the value of negative gearing. Probably a fair cop, but at the margin, this will make investment less attractive.

With unit approvals on the wane, whether these measures dampen supply or demand will be the interesting question.

The regions have not been forgotten.

The Government has committed to ensuring the benefits of Australia’s economic growth are shared broadly across the country with major investment in infrastructure across our regions.  The Regional Growth Fund will invest $472 million in regional infrastructure projects that back the communities’ plans to grow their local economies and adapt to the changes taking place through globalisation and technological change.

Back to the future?

In the 1970s there were quantitative controls on lending and there is a reason why they were abolished which has been forgotten. There is support in a number of quarters for APRA’s controls on the banks which is now to be extended to the other lenders, and APRA is also to be allowed to differentiate the application of loan controls by location. The question here is, is APRA not doing the credit risk assessment the banks should be doing themselves?

Interestingly, shortly after the Budget, the ABC’s Foreign Correspondent show looked at the housing crisis playing out in most big cities in the world, highlighting the point that Australia’s situation is not unique. Tokyo had the best answer – plenty of new supply in a country with a declining population and surprise, surprise prices are not rising.

 

Dr Nigel Stapledon
Chief Advisor


Combined with the latest information from the 2016 Census, MacroPlan are offering national mapping of spatial impacts and forecasting new opportunities generated by:

  • Proposed infrastructure projects such as the rail upgrade / extensions
  • First home buyer markets
  • Downsizer markets
  • Reviewing the impact to existing property portfolios and network plans

For more information or to discuss your property research requirements, please contact Amy Williams, National Marketing Manager on 02 9221 5211 or amy.williams@macroplan.com.au.

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