iBuildNew rejects three key initiatives from the 2017 Budget first home buyer measures

iBuildNew rejects three key initiatives from the 2017 Budget first home buyer measures
iBuildNew rejects three key initiatives from the 2017 Budget first home buyer measures


Two weeks following the budget, the topic of housing affordability is still not waning.

Australia and the world united last week to slam young real estate mogul, Tim Gurner, who claimed young Australians can’t afford to buy property because they are spending “$40 a day on smashed avocados” and “not working”. The story spread like wildfire nationally as well as globally with media outlets including TIME Magazine, Washington Post, and The LA Times picking up the story.

While sensationalised, the crux of the problem has still not been addressed.  

Recent research conducted by iBuildNew which surveyed Australian FHBs to examine how much an affordable house is considered to cost, what the biggest barriers to entry are, where and what housing alternatives were being considered, and other useful statistics and insights. The full findings can be found in the Appendix below.

About the super saver scheme

The Government will help Australians boost their savings for their first home by allowing them to build a deposit inside superannuation. These contributions, which are taxed at 15 per cent, along with deemed earnings, can be withdrawn for a deposit from 1 July, 2018.

While the 'First Home Super Savers Scheme' will provide some benefit to Australian FHBs, it needs to still be kept in perspective in terms of popularity among its target audience:

As an incentive to help FHB's save I really like the scheme, but am skeptical as to how effective this will be in terms of how many people will take this up.  

I suspect FHB's will not see the incentive as strong enough and have concerns their savings will be locked away until retirement if they can't ultimately save enough, property prices keep rising, or their personal circumstances change, which are all legitimate concerns. 

In theory however, if a FHB is on $80,000 pa and elects to salary sacrifice $1,000 per month into super for a deposit, within 2.5 years they will save the $30,000. Depending on their state, they should be eligible for the FHB grant of $10,000-$15,000 (let's say $15,000), so they then have $45,000 in total savings. An average off-the-plan house and land package across Australia is $440,000 and if you assume you need 20% of the total amount (worst case) to secure a loan from the bank, the FHB still needs to save or access another $43,000.  

This is in no way a slam dunk but may be possible if they already have some sort of additional savings or can access equity in their parent’s home, for example. However, with only just over 20 percent of FHB’s considering new home builds with most preferring established properties at much higher starting prices, this savings challenge is far more acute for most. Unfortunately, the numbers don’t lie, and while this initiative may create some savings discipline from the few that take it up, most FHB’s dream of owning their own home will still be out of reach.

Relevant statistics (per iBuildNew recent survey findings): 76 per cent of first home buyers can’t get into the property market because they can’t save the deposit or secure a loan.

Only 22 percent of FHBs are considering a new home build as their entry option to the property market, with 60 per cent preferring to buy established despite the significant price differential between the two options.

About retirees downsizing super exemptions 

In a bid to release more property to the market and help tackle housing affordability for Aussie first home buyers, Australians over 65 years of age will be able to contribute an additional $300,000 from the sale of their main residence (if they have owned it for 10 years) into their superfund at non-concessional rates.

Starting from July next year, this scheme was designed to encourage retirees to actively consider downsizing in an attempt to free up larger homes for younger families and FHBs. Downsizing to free up capital makes a lot of sense for the older generation as they often own their own home with significant equity, but may not have much super to live off.

I am is very skeptical about this initiative. He thinks this won't help first home buyers at all and is simply a strategy from the government to relieve pressure on pension entitlements:

Firstly retirees that have been in their home for more than 10 years generally live in homes that cost $1,000,000 or more, so creating new supply in this high-cost range won't help first home buyers at all. Any impact is likely to be at the upper end of the housing market, not in the sub $450,000 where most FHB’s consider affordable. This initiative in the short term actually has a negative impact on supply as some retirees that would have otherwise downsized in the next 6-12 months will now be holding off selling their house until this initiative takes effect in July 2018.

Secondly, and most importantly, we see this as being a strategy from the government to relieve pressure on pension entitlements. At the end of the day the country has an issue on how to fund pensions entitlements, so this would take some pressure off if retirees took it up. However, accountants will advise their clients to think very carefully about this as the principal place of residency is excluded from the net asset means test calculations when it comes to pension eligibility.

Many simply don’t want to leave what they know, but many won’t want to forgo the state pension in lieu of their super pension, so you really have to question what impact this will have on housing supply. Branding the retiree downsizing scheme as a housing affordability measure I find very strange, at least for FHB’s.

Relevant statistic (per iBuildNew recent survey findings): 63 pe cent of first home buyers believe an affordable house costs less than $450,000, 85 percent think it’s less than $600,000.

About the foreign owners rent levy

Overseas property investors who leave their houses unoccupied will face an annual charge to help encourage foreign owners to make their property available to rent to improve rental supply – or that’s the plan anyway. Predictions on empty properties put the number as high as 300,000 across the country, however Mr. Peterson believes the levy will do nothing to increase housing affordability:

The levy only starts from $5,000, so even the more expensive properties around Australia will only attract a $15,000 slap on the wrist. For the Chinese who are using this as a strategy to get money into a safe haven (often several million dollars), a small annual charge is unlikely to drive a change in behavior from these types of investors who are more concerned about capital preservation than realizing rental returns. Even if it does, all this would do is ensure more blue chip houses are available for rent, generally at rental rates that people who are looking for affordable housing, can't afford anyway.

I think this is bit of a cop out by the Government who are trying to blame foreign investors for the housing supply shortage and affordability, when in reality they are a minority group undertaking this activity, so they have missed the mark.

About the release of surplus government land

As part of the housing affordability package released in the budget announcement the government has earmarked 127 hectares of surplus land in Melbourne which could house up to 6,000 properties. They have also outlined similar measures for Western Sydney. It is initiatives like this that can make a real difference.

The release of government land is one of the few genuine measures announced in this year’s budget that will actually help the housing affordability challenge. It directly impacts supply of land, and that has a direct impact on price and affordability.

In my view this type of land should be made almost exclusively for first home buyers, with a double FHB grant available on the purchase of such land when committed as part of a house and land package. If the super saving scheme is going to have any real impact, it still needs to be coupled with a first home buyer grant if FHB’s are going to be any chance of saving sufficient deposit in the Melbourne and Sydney markets.

However, FHB’s need to look beyond the inner suburbs of Melbourne and Sydney, lift their eyes and explore some of the outer suburbs if they are serious about getting into the property market. A new build house and land package is typically 40% plus cheaper than an inner suburb established property, not to mention its brand new.

Relevant research (per iBuildNew recent survey findings): 64 percent of first home buyers are only prepared to look at properties within their suburb of choice or surrounding suburbs.

Only 22 percent of first home buyers are considering a new home build while 60 per cent are focused on buying an established home or townhouse.

76 percent of first home buyers can’t get into the property market because they can’t save the deposit or secure a loan.

Daniel Peterson is chief executive officer, iBuildNew, and can be contacted here.

Federal Budget Housing Market

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