Treasury says slower population growth to ease prices as homebuilder and first-home buyer aid fires up market
Extensions to the homebuilder program and subsidies for first home buyers announced in Tuesday’s budget will tip more money into Australia’s already red hot property market.
But the government says slowing population growth and the wind down of government subsidised construction activity will help cool things down in the longer term.
The homebuilder program has prompted $30bn worth of residential construction activity since June last year and is contributing to Australia’s record high house prices, Treasury said.
The program, which provides owner occupiers with a grant of up to $25,000 to renovate or build a new home, has received over 120,000 applications and is expected to drive a 2.5% lift in dwelling investment, the government forecasts.
The homebuilder six-month construction period, in which projects were slated to start, has recently been extended to 18 months.
“The near-term outlook for housing activity has strengthened considerably, supported by an elevated pipeline of construction work and rising house prices,” the budget papers say.
“As the outlook for elevated levels of detached house construction unwinds, slower population growth is also expected to limit demand for higherdensity dwellings in coming years, such that the recent strength in housing market activity is not expected to be sustained.”
Housing affordability is top of mind for Australians as house prices rose at their fastest pace in more than 30 years in March. The median house price in Sydney recently hit $1.3mn and $1mn in Melbourne.
The demographic shift from cities to suburbs may also curb runaway property prices.
“It is not yet clear what structural changes will result from the pandemic, particularly given the greater propensity to work from home during the pandemic,” Treasury said.
“Changing preferences for more outer-city, spacious and detached housing may also limit growth in apartment construction in coming years.”
Tuesday’s budget has used superannuation incentives to help younger Australians enter the property market and older Australians vacate the family home.
Additionally, an extra 10,000 places will be made available under the New Home Guarantee, allowing first homebuyers to buy a place with as little as a 5% deposit.
In past Coalition budgets, notably in the Abbott years, single parents have borne the brunt of belt tightening, including tougher requirements to return to work when children are young. But in this budget the government has
recognised “the economic and social benefits of home ownership” for single parents bringing up children.
“The government will establish Family Home Guarantee to assist 10,000 eligible single parents with dependent children, the vast majority of whom are women, to enter the housing market with a two per cent deposit,” the budget says.
Whether single parents will be able to take on a mortgage at 98% of the cost of a house, is unclear but is unlikely to help single parents in the major capitals.
day night, the government lifted the amount of money people could deposit in the concessionally taxed first home super saver scheme (FHSSS) from $30,000 to $50,000. The FHSSS allows people to save some tax while they are saving for a home deposit by parking their deposit in their super fund until they are ready to buy a home. While the FHSSS does nothing to lower the price of houses or help people on low incomes save much, it does help people save a bit of tax on the interest they earn on their deposit. The fact that the government just needed to increase the amount of money you could park for a deposit by $20,000 tells you everything you need to know about how effective their “affordable housing” strategy has been.
Grants for first home buyers have a long and failed history in Australia but they never lose their appeal. They are simple to explain, the people who get them are grateful, and few recipients of a grant ever blame the person giving it to them for rising land prices, rising construction costs or anything else. In the middle of the Covid recession when there were fears that the construction industry might collapse, these sorts of grants made some sense as a form of stimulus, but now that the market is in good shape it will simply drive prices higher.
And finally, there’s the family home guarantee to help single parents buy a house with a deposit of only 2%. Again, this may help give some single parents a “leg up”, but it’s important to realise that the single parent then needs to make repayments to cover a loan worth 98% of the purchase price. Given that the scheme is only available to people who earn less than $125,000 and that the applicant needs to earn enough to make the repayments on a loan of 98% of an Australian house price, it is a safe bet that few single parents will be popping the champagne corks any time soon.
Australia has some of the most expensive housing in the world and none of the budget’s housing affordability announceables will lower house prices, for the simple reason they were not designed to. Falling house prices would be a political nightmare.
If government did want to make houses cheaper, it would need to remove the capital gains tax exemption that ensures when a $10m house goes up in value by 10%, its owners pay zero tax on their $1m windfall.
If government wanted more people to own their own home, then it would have to reduce the tax benefits for buying investment properties for the simple reason that you can’t have more investment property owners without having more tenants.
And if government really wanted to help single parents, retirees and lowpaid workers who can’t afford a house, it could build a lot more public housing, and increase rent assistance.
But fear not, existing homeowners, none of these things are going to happen. And even if house prices ever did start to fall, I assure you that governments will find a way to try and push them back up. All the talk of making housing “affordable” is a simple smokescreen for ensuring that it’s not.
• Richard Denniss is chief economist at independent thinktank the Australia Institute