What will fix housing issue?
IT WAS Albert Einstein who was quoted that the definition of insanity was doing the same thing over again and expecting different results.
The two major political parties are heading to Saturday’s federal election with quite similar housing affordability policies, although using different mechanisms to get there. And, once again the parties have missed one of the key problems feeding Australia’s housing affordability crisis – supply.
Since Sydney hosted the Olympic Games, successive state and federal governments have thrown thousands of dollars at first-home buyers under the guise of helping them get a deposit to break into the market. And each time as thousands take up the opportunity, the cost of entry into the property market has risen exponentially, weakening the ability of the next generation to do the same.
It’s reached a point where the current generation of firsthome buyers are paying multiples more of their annual income to break into the market compared to their parents and even older siblings.
Both parties support a guarantee to first-home buyers, efprices fectively allowing buyers to save only a small deposit but avoid paying loan mortgage insurance. Labor also proposes a limited government buy-in, borrowing from schemes that already operate in Victoria and Western Australia where the federal government provides up to 40 per cent equity in a home.
Under the scheme, buyers have to pay the government back when they sell (including the portion of capital growth) or when their annual income exceeds the rules of the scheme, much like a university student has to pay their HECS debt.
The Coalition has approached the problem from two ends – first-home buyers and seniors, who will be allowed to sell the family home and pocket up to $300,000 per person into their super accounts tax free outside the current contributions cap in order to downsize.
The government says this scheme will unlock familysized homes to the market.
But the problem here is more often than not downsizers and first-home buyers compete for the same properties. The net result would the higher prices for everyone.
But first-home buyers would also be allowed to dip into their own super, taking 40 per cent, or up to $50,000, from their retirement savings to buy a house, having separately saved a 5 per cent deposit.
Like the Labor scheme, buyers have to put the money back when they sell, including a share in the capital growth.
Both parties schemes are designed to surpass the biggest hurdle to home ownership at the moment, affording the upfront deposit, which has become a huge hurdle for many.
Economists have already criticised the Coalition’s scheme, saying it would cause house prices to rise, while Labor’s scheme has also been labelled inflationary by bringing forward demand.
But what neither party has seriously done is look at changing the supply side of the equation, which is the dominant reason house prices have grown so fast in recent years.
That’s exactly how the market played out during the pandemic, especially in regional areas such as Geelong where are 30 per cent (or $200,000) higher than when the nation lurched into its first lockdown on 2020.
No sane market analyst could have predicted that, but it was the government that gave confidence to buyers in the financial position to commit to buying or building, combined with a record number of people leaving capital cities for the regions after reassessing their lifestyles.
Plenty of buyers lost their heads during this time, while the unprecedented uptake in the Homebuilder scheme has in part precipitated the explosion in building costs by bringing forward purchases.
Developers point out that the government is not allowing enough land to be released for new housing, but they should also share the blame for dripfeeding supply.
None of the new policies adequately deal with the supply issue that’s seen prices climb so high.
Property markets are starting to cool, with auction clearance rates slipping and homes no longer regularly selling wildly above expectations.
But that doesn’t mean that property is about to become cheaper.