Cool the hot market
How can we make the Australian dream of owning your home a reality?
HOUSING affordability has become the buzzword of politics and media. How to make the Australian dream of owning your own home more affordable… particularly for first homebuyers.
The debate is throwing up some pretty weird suggestions, many of which aren’t properly thought through and which would add to the problem rather than ease it. So we thought we’d throw a couple of our own suggestions into the mix. Before we do, a couple of things to remember.
First up, property is all about demand and supply. So any housing affordability suggestions can’t fuel the demand and add to price pressure. So any solution has to be a mix of subduing demand and increasing supply.
Secondly, the housing affordability issue really only affects the Sydney and Melbourne residential property markets. Across the rest of the country, residential price growth has either been flat of falling. So any changes must be a balancing act.
DIRECT IMMIGRATION AWAY FROM SYDNEY AND MELBOURNE
A number of experts are suggesting a cut to immigration numbers because new arrivals tend to land, and settle, in Sydney and Melbourne.
But immigration is great for economic growth, particularly with an ageing population.
Migrants are also critical to sustain the workforce of a number of key industries.
So rather than cut migration, direct it away from Sydney and Melbourne. Make it a condition of a visa that the recipient must settle in a particular region for a certain time period.
FOCUS ON JOBS GROWTH IN REGIONAL AREAS
We know what you’re going to say… where are the jobs for new migrants away from Sydney and Melbourne? It’s a fair point and one which all levels of government should focus on.
For decades, as a nation, we’ve tried to implement a “decentralisation” program with very mixed results. While state governments have shifted various public service departments to key regional areas, private industry has been slow to follow suit.
But maybe the time is right for another push on the back of incredible advances in communications, the trend for working remotely and the desire for lifestyle changes away from the madness of big cities.
Of course, this solution can’t be implemented overnight, but it’s a vital one if we are to keep sustainably growing.
We should take a leaf out of the US playbook which has encouraged major companies to establish headquarters in inland towns with great success.
CUT STAMP DUTIES FOR ALL AND INTRODUCE BROADBASED LAND TAX
This is a favourite solution of Louis Christopher from SQM Research.
“By removing stamp duties and introducing a broad-based land tax, it would make existing property owners far more mobile and help ensure easier entry and re-entry into the property market,” he says.
“State governments would also have far more stable, predictable revenue streams instead of the boom-bust cyclical nature of their revenue now.”
DAMPEN FOREIGN BUYERS AND/OR ENCOURAGE THEM TO RENT OUT
Figures last week showed an incredible 10 per cent of all residential properties being bought in NSW at the moment are by foreign buyers. Of those buyers, a third are from China, followed by UK, NZ and India. And the evidence is that a lot of their purchases are left vacant.
Under current investment rules, a foreign buyer can only acquire new houses/units or vacant land.
The tightening of lending rules for foreign buyers and the introduction of stamp duty surcharges don’t seem to have dampened their enthusiasm.
Why not limit the number of residential properties to be held by a single foreign investor and also impose a financial penalty if they are left vacant?
PHASE OUT OR RESTRICT NEGATIVE GEARING
Getting rid of negative gearing and its associated tax benefits altogether would be just plain silly. Rather than use a sledgehammer, let’s finesse negative gearing to safeguard investors but also ease demand.
The tax benefits of negative gearing were originally designed to encourage investors who may have been put off by the high transaction costs of buying property (stamp duty, legals, commissions etc) which would mean it could take a couple of years to turn a profit.
To be consistent with that premise, why not look at phasing out negative gearing benefits after four years from purchase and/or restrict it to a set number of properties per investor.