For the first time in recent history the housing market has both directly and indirectly has dictated key aspects of the 2017-18 Federal Budget. In light of all of the pre-budget commentary this comes as no surprise.
The budget delivers a raft of changes impacting first time buyers, investors, older home-owners, offshore buyers and social housing. As such the sweep of changes impact many areas of the market, and while it’s good to see housing elevated to such prominence, questions remain as to what longer-term policies might evolve.
Many of the changes only touch the surface and even with some attempts to encourage more housing supply, the conflict between Federal and State responsibilities remains.
The States remain responsible for unlocking supply which the Federal Government can only influence from the margins.
Few would argue that having safe and secure is something that a country like Australia should be able to deliver for every individual and family. However, there’s no entitlement as such and if affordability is to be given a boost then the ability to access superannuation savings announce in the budget, are a good step. But do they go far enough?
It is very unlikely that house prices are going to be impacted by the budget, let alone somehow reduced. In many markets the possible savings target from superannuation of $60,000 for a couple, looks miserable against today’s home values.
Given that governments at all levels, extract such a big tax take from the housing market already, a more generous and tax free package might have been expected. After all the flow on impact from the creation of more first time buyers fuels overall economic activity. However after months of debate the ability to access superannuation has been established and that’s a win. The door for further access might just be open.
The concessions that allow older home-owners to boost their superannuation savings from the sale of the existing homes, is also helpful, but again it’s another conservative first step. Older home-owners, need to be encouraged to leave their empty nests. One figure that helps show why, is the fact that according to the ABS, 78% of homes have a spare bedroom.
Thanks to the budget selling the family home and ‘right-sizing’ is just that little bit more attractive, but again the change will only have limited immediate impact.
After taking care of first time buyers and older homeowners, the budget to various degrees take a stick to investors and offshore buyers with a mix of measures that some will applaud. Extra taxes on and limits on offshore buyers are a world-wide trend, and the market will adjust.
The new bank tax fits into the same basket, but there’s a danger this will push up bank costs and may inflate interest rates. This would put new pressure on affordability.
The changes impacting investors and offshore buyers may impact the market slightly, but they will not in any way add to supply or drive down prices.
Picking Winners Looks Silly
For most of last year and over the past few months housing has been a never ending topic: “Owning a home is the impossible dream” then we see other topics: “The Daily Telegraph Thinks This Young Woman with Six Properties Is ‘Proof’ That Anyone Can Do It”.
This budget did not, despite lots of calls for it to do so, make any changes to negative gearing or more generally capital gains tax apart from the changes impacting off-shore buyers. However, some very minor investor deductions have been limited, and this may well lay a path to more reductions and changes in future budgets.
It’s tempting to draw the conclusion that the Federal treasurer is testing the water with some of these changes and that we will see policy creep in coming years, both good and bad.
It’s all About Population & Infrastructure
Australia’s major cities face challenges and have failed to keep pace with infrastructure and population growth.
Population growth has logically re-shaped the housing market, and it’s a trend being accelerated in Sydney and Melbourne, so although not directly related to property, the big ticket infrastructure projects like Sydney’s second airport will have an impact on the housing market and an almost immediate impact on employment.
The Brisbane to Melbourne rail link could even in the long-term help boost the appeal of some regional cities, although there’s a long long way to go with this one, and let’s hope it does not take as long to start as has Sydney’s new airport!
Just a Start and a Light Touch
The housing market is very diverse and complex, driven by many factors and geography and a set of decisive policy shifts may have been anticipated in this budget. But this did not happen, what we have seen is a series of light-touch and tentative measures.
Gone are the days when interest rate policies were a strong lever and this budget also demonstrates that the Government is cautious about both fixing the housing market or up-setting the market balance to sharply.
While we could argue for bolder policy changes, they need to be long-term solutions and this includes a less political approach, possibly with some more direct incentives, and much better planning between the Federal and State Governments.
Above all leadership is required and perhaps, even if slowly this budget signals that this may be starting to happen, but let’s hope for a quicker pace next year.