The federal government has repeatedly stated in its 2017 budget that it tends to use “scalpel” rather than “chain saw” or “sledgehammer” methods in the housing market. The number of housing measures in the budget is wider than the most recent previous budget. The policy levers of both supply and demand have been incorporated into a series of housing measures. The government called this a “comprehensive plan that can work.” However, have the demand measures gone far enough to make the housing affordability crisis facing an entire generation of first-time homebuyers into trouble? Or is the so-called scalpel too blunt to bring them meaningful changes? First Time Home Buyer Super Saver Program The budget is designed to help young people gain a foothold on the housing ladder.
The key housing measure is to allow first-time home buyers to use a voluntary pension of up to A$30,000 to pay for their first housing deposit.
Obviously, the plan will attract the tax advantages of pensions. Therefore, in principle, it will help first-time homebuyers accelerate savings to purchase a house, thereby closing the savings gap, while protecting pension savings accumulated through mandatory employer contributions. However, at least two key issues are related. The first involves how many first-time home buyers will likely be in a good position to voluntarily donate to their super savings account. Australians seem to be generally reluctant to provide voluntary contributions. Existing research has found that family budget restrictions are a major obstacle, which prevents many people from voluntarily paying pensions. Other factors include poor financial knowledge and lack of understanding of the pension system. The second key issue is related to the plan’s impact on real estate prices. The purpose of the plan is not to ease the demand pressure on the housing market. High house prices may not be contained, so for many first-time buyers, the prospect of owning a home will continue to disappear.
Existing demand-side levers, including “first-time homebuyer subsidies” and stamp duty concessions for first-time homebuyers, have not succeeded in increasing the housing affordability of most young people. Therefore, it is difficult to see that additional demand leverage (such as the “First Home Buyer Super Saver” program) will have a significant impact on affordability. This is not to say that the budget completely ignores the need to ease the tension in the real estate market.
The pressure on demand can be relieved by measures aimed at two other types of homeowners: old homeowners and tenants. The budget does include measures for these two groups. Furthermore, the question remains whether the leverage is long enough to have a meaningful impact. For older owners and real estate investors Smaller households over 65 years of age will be allowed to use $300,000 from the sale of family housing as their super fund. Many older homeowners live in larger houses than they need after their children leave home. Helping older homeowners (sometimes the “last homebuyers”) to create smaller homes can free up larger homes for first-time home buyers in the early stages of the family. However, there are many obstacles to downsizing. These include both financial and non-financial barriers.
Importantly, most elderly homeowners have a strong emotional attachment to the family home and the local community. The lack of suitable and affordable housing in communities where older owners want to stay has also created an obstacle to downsizing. In order for the scale of reform to be reduced and effective, financial incentives need to be accompanied by the adoption of supply-side solutions to expand the diversity of the housing stock in order to meet the housing preferences and needs of old homeowners. The government has not made any major changes to tighten the negative debt ratio or capital gains tax relief to reduce competition from real estate investors. The focus of attention is that if investors withdraw from the private rental market as a whole, the potential shrinkage of private rental housing supply.
However, from a long-term perspective, the second round of effects will be considered. As investors sell their rental properties, there will be more properties on the market that can meet the needs of first-time home buyers. As more and more renters become buyers, this will not only ease the tension in the rental market, but also encourage subsequent investment in the second home, as young professional builders seek to accumulate more after acquiring the first home. Multi-property. The second and third rounds of influence need to be more integrated into policy thinking, so that policy design must be based not only on short-term considerations, but also on medium and long-term considerations. Is the budget enough? The budget contains countless supply and demand levers, directly or indirectly aimed at helping young people make their first home purchases. For the government, this is an overdue but welcome statement, and it needs to do a lot of work to improve the prospects of first-time home buyers. In principle, a set of measures aimed at simultaneously affecting the supply and demand of the housing market is a wise choice for deep-rooted policy issues (such as housing affordability). However, in reality, policy design is very important. Taking the 2017 budget as an example, if the housing affordability crisis that plagues the entire aspiring homeowner is to be effectively cut, the scalpel seems to need to do more.
