Here in Australian we love property. We love being in it, renovating it, talking about it and complaining about it.
And a lot of those complaints are perfectly valid.
As I mentioned in a previous blog post, it’s getting harder for first home owners to get a foothold in the property market. But since the realisation that finding a solution might get some votes, every politician and their proverbial dog is throwing their hat into the ring with a possible solution.
Let’s look at some of their proposals, and what (if anything) they might achieve.
Australia’s proposed solutions
As part of his ‘study tour’ of the UK, Federal Treasurer Scott Morrison has been learning about their social housing scheme. In a nutshell, the scheme provides low-interest loans to regulated housing associations , who in turn provide affordable housing to residents for rent and ownership.
The Treasurer has put together a taskforce to explore the feasibility of a “rent to buy” scheme, where rental payments go towards/offset a mortgage. The idea certainly has merit, but whether the idea comes to fruition, or was just an excuse for the Treasurer to visit the UK, remains to be seen. Remember: Everything is on the table… until they take it all off again.
Victorian Premier Daniel Andrews recently announced that first home owners will no longer have to pay stamp duty on properties up to $600,000, and will receive concessions on properties between $600,000 and $750,000. This is a great initiative, as stamp duty is an inefficient tax that hinders the mobility of the workforce.
Premier Daniels will also be implementing government co-equity loans in 2018. Depending on their income, Victorians will be able to put a 5% deposit towards a home and the government will make up the shortfall (and take an ownership stake in the home). So far, the only other stipulation is that the purchaser must be able to service the loan above the 5% deposit they provide. However this presents a risk, it may incentivise buyers to borrow more than they otherwise would have without the co-equity loan, increasing the amount of debt they take on.
The idea of using superannuation to help fund the deposit has been thrown around, but the issue of low superannuation balances for younger buyers limits its viability. Besides, the whole idea behind superannuation is to fund a person’s retirement, not their home loan.
Federal Member for Mallee Andrew Broad suggested that banks forego deposits from first home buyers with a three-year rental history. This could be a good idea if rental costs were to stay similar to home loan repayments. In our current environment of low interest rates, the risk of rates going substantially higher over time is very real. This coupled with the loan being 100% rather than the traditional 80% compounds the potential difficulty for borrowers to make repayments. Of course, many parents are already achieving a similar outcome by pledging some of the family home equity to help their children get into the market.
It seems our politicians, both state and federal, are finally putting the time effort into coming up with proposals to help first home buyers. But ultimately these proposals are just dealing with the symptoms. None of these proposals will work until they address the disease of negative gearing and capital gains tax.
And if they did that, they probably wouldn’t need to come up with these proposals in the first place.