Housing affordability budget lives up to the hype

Scott Morrison’s second budget delivers a substantial housing package, including support for institutional investment in affordable housing, but attacks foreign investment and relies on upswings in economic growth to fund essential infrastructure.

Property Council chief executive Ken Morrison says budget has “lived up to the hype” by tackling housing affordability.

“Improving housing supply, keeping rental growth low and closing the deposit gap are all welcome, but the initiatives targeting foreigners will damage Australia’s reputation and will do nothing to help housing affordability,” Morrison explains.

 

Tackling affordability roadblocks

A new National Affordable Housing Agreement will replace existing arrangements, but will maintain the same $1.3 billion annual funding. It will require state and territory governments to meet housing supply targets and reform planning systems.

“We have consistently said that you can’t change the trajectory of house prices in our cities without making progress on housing supply – and that means tackling blockages and providing non-distortionary incentives to invest in new supply,” Morrison says.

National competition-style housing incentives can encourage state governments to unblock housing supply, Morrison says. He points to research by Deloitte Access Economics which estimates that this could also boost the economy by $3 billion a year.

“We welcome the fact that the government has adopted this concept for the Western Sydney City Deal, which is expected to be a pilot approach for subsequent deals.”

A $1 billion national housing infrastructure facility, based on a similar UK model, will fund micro city deals that eliminate infrastructure impediments to residential development.

“Often very large developments can be held up because of relatively modest infrastructure gaps. If this fund can address these, it will be a very welcome measure,” Morrison says.

An online commonwealth land registry will detail sites available for residential development, starting with surplus defence ministry land in the Melbourne suburb of Maribyrnong that could accommodate 6,000 new homes.

The Property Council says this is a “good idea”, if “backed by a concerted effort to recycle redundant government land”.

 

Investment in affordable housing

A national housing finance investment corporation will be established by 1 July 2018 to provide long-term, low-cost finance to support core affordable housing.

The Property Council gives the government “full marks” for increasing the capital gains tax discount from to 60 per cent for resident individuals who invest in affordable housing.

Managed investment trusts will also be able to invest in affordable housing, which must be available for rent for at least a decade.

The Property Council applauds the government’s intent to “remove blockages” to encourage long term investment into affordable housing, but argues that changes to MIT arrangements won’t on their own deliver this outcome.

“We look forward to working with the government and non-government groups to evolve this framework to deliver new rental supply at market and below-market levels,” Morrison says.

 

Addressing the deposit gap

A new first home savers scheme will help young homebuyers stockpile a deposit by salary-sacrificing into their superannuation account. The scheme will offer the same tax advantages as superannuation.

“The architecture of the First Home Super Scheme appears to be a non-inflationary measure that will help hundreds of thousands of Australians save for a deposit for their first home,” Morrison says.

 

Support for downsizing

From 1 July 2018, Australians aged 65 or more will be able to make a non-concessional contribution to their superannuation of up to $300,000 from the proceeds of selling their home.

Morrison says this superannuation-linked budget incentive is welcome, but should be extended to “deal with the barrier of the pension assets test to deliver maximum impact”.

“The fear of losing age pension entitlements and transaction costs are two of the biggest barriers to downsizing, contributing to tens of thousands of near empty family homes in suburbs across Australia,” he says.

 

Foreign investors

Foreign investors will be hit with an additional $5,000 tax if they leave their properties vacant for more than six months each year.

And property developers will prevented from selling more than per cent of new developments to foreign investors where they seek a new dwelling exemption certificate.

Morrison says these measures are “aimed at punishing foreign investors”, do nothing to improve housing affordability and “potentially send a message about Australia’s openness to investment”.

“The decision to impose a per cent cap on foreign ownership in the bulk of new developments will achieve little. It is rare to go above the cap – but where it does it brings new stock online that cycles back through the market for everyone to access.”

 

Taxation

There will be no wholesale changes to negative gearing arrangements, and Morrison says the “legitimate integrity measures” – namely eliminating deductions for travel expenses to inspect investment properties – will save more than $160 million a year.

“We are supportive of this tightening,” he says.

 

Infrastructure spending

Spending of $75 billion over the next 10 years, as well as a $10 billion rail line upgrade are at the heart of the budget’s economic growth plan.

“Getting our cities working better is fundamental to the productivity of our cities. That is why the decision of the Commonwealth to back-in metro rail lines in our cities is the right one.

“While there is a welcome focus on new metro lines in our cities, almost all of the mooted $10 billion in funding will be beyond the four-year forward estimates,” Morrison explains.

The government also promises to roll out City Deals to “rev up reform”, and the Property Council is pleased that South East Queensland will potentially be “next cab off the rank”.

“It’s also a plus to see planning and housing supply improvements being hard-wired into the Western Sydney City Deal.”

But the Property Council offers a note of caution.

“Once again, this budget relies on an economic growth upswing to kick in next year to fund infrastructure investment. Let’s hope this optimism pays off.”