Category: Property Market

Super saver accounts fail to impress

From The New Daily.

The government’s plans to allow first home buyers to salary sacrifice up to $30,000 into superannuation accounts looks set to do little to make houses more affordable.

“Under this plan, most first home savers will be able to accelerate their savings by at least 30 per cent,” Treasurer Scott Morrison said in his budget speech.

From July 1, 2017, people can contribute up to $15,000 a year, taxed at 15 per cent, into their superannuation accounts for a home deposit.

Withdrawals will be allowed from July 1, 2018, and will be taxed at marginal tax rates minus 30 percentage points.

Dr Sam Tsiaplias, economist at Melbourne University, said the measure would not improve housing affordability “in any substantive way” because it favoured the well-off.

“Most of the people who might take this up will be able to afford a deposit anyway,” he told The New Daily.

“If the objective is to help a relatively small number of households save faster it probably can do that.”

Because the money will be deposited in Australians’ super funds, it has been suggested the funds would need to adjust their programs. But Dr Tsiaplias said the accounts would probably be so unpopular that they wouldn’t affect the super funds “in any way”.

Superfund Partners director Mark Beveridge said the government’s “30 per cent” sales pitch would simply leave super funds offside trying to accommodate the new funding arrangements.

The new schemes do not rely on Australians to open new bank accounts. Instead, the government will allow deposit savers to salary sacrifice into their superannuation accounts.

Bill Watson, CEO of First Super, said people who use the new scheme need to be wary of the risks that come with investments.

“There’s a risk that what you think is a saving is exposed to losses in the market. What a person would need to do is put it into a cash investment, but you get pretty much the same return as a bank deposit.”

Saving schemes like this have been tried in the past. The first Rudd government introduced First Home Saver Accounts in 2007. Savers were taxed at 15 per cent on the first $5000 they deposited each year, while interest was taxed at 15 per cent. The government also kicked in a 17 per cent contribution a year on the first $6000.

However, Labor’s scheme saw little uptake. Only 48,000 accounts were opened, compared to the projected 730,000. It was abolished in 2015 under the Abbott government.

Wayne Swan, treasurer during the first Rudd government, speaking on CNBC on Wednesday, said his scheme would have shown its impact if it had not been abolished.

“It was a far more generous proposal than the one they announced last night,” Mr Swan said.

“[This is] just window dressing because they’re ideologically opposed and won’t touch the negative gearing provision which is the key to solving this problem.”

First Home Buyers Australia co-founder Daniel Cohen said he supported the scheme, but wanted more to be done to address affordability.

“It doesn’t single handily solve the property crisis,” he said.

“We also wanted to see measures that decreased the amount of investor activity in the market, we were also disappointed that there weren’t more cuts to tax incentives given to investors.”

Negative gearing came in for only minor changes in the budget, with some tightening around travel expenses and depreciation deductions.

The government expects its home buyers grant to cost $250 million and its changes to negative gearing to save $540 million over the next four years.

Tiny houses: the big idea that could take some heat out of the housing crisis

From The Conversation.

If you could have a new home, exactly to your specification for about a year’s average salary wouldn’t you take it? Many people, in the US, UK and Europe want to find an alternative housing solution that is cheap and mortgage free but also ecologically sustainable. The solution may be to build so-called “tiny houses” – very small dwellings, often built on trailers, that make the most of unused, unwanted or free sites in the city or country.

The tiny house is, indeed, tiny. It comes in at less than 25 square metres, but is able to provide comfort and security at minimum cost. These are primarily wooden buildings and can be bought ready-to-use or can be assembled by their future occupant. For as little as £15,000, you can buy a kit, or for up to £50,000 you can get a fully assembled and fitted-out home for two.

Because of their size they can be built on a steel-framed base similar to a trailer or caravan, meaning they can be mobile and therefore capable of use on temporary sites. They are usually single-space dwellings, sometimes with an open loft for sleeping reached by a ladder or steep stair with a shower room below. Most people would choose to set up a permanent or temporary connection to conventional services, but you can also go “off-grid” with solar panels, wood burners, and bottled gas for energy needs and chemical toilets or outhouses for sanitation.

Cutting back

There are now so many tiny house enthusiasts that it can justifiably be described as a movement, with online forums for practised and aspiring builders to share ideas and experiences. These houses are both cute and eccentric. Perhaps they tap into a common aspiration that people had as children to build a fort, a tree house, or a den. However, they also meet the deep human need to find a home that is just right for us. For those who have built their own Tiny House there is a special sense of connection to something made by their own hand, tuned to their own needs, even if they have used other people’s plans and commercially available components.

Tiny house advocates are attracted for both practical and cultural reasons. Although the idea of sorting out your main living expense for the price of a family car is undoubtedly a key motivation, it is also about empowerment of the individual to step outside the corporate idea that “bigger and more expensive is better”. Tiny house owners no longer aspire to an island kitchen unit or a wide screen TV in the basement, and it’s fair to say that buying stuff slows right down when you have nowhere to put it.

It is also about environmental responsibility and sustainable living. These buildings, simply because of their size, use considerably less energy both in their construction and running costs. The inclusion of other simple efficiencies such as LED lighting, super-insulation, and water reclamation simultaneously boosts ecological credibility and lowers monthly bills.

A sustainable life

We might think that this sort of living stems from ultra-modern, post-capitalist thinking, but in truth, it isn’t a new concept. The historic roots of the tiny house movement are in the traditional buildings that 17th-century settlers first built when homesteading North America and before that in earlier European rural precedents. These were simple, often one room buildings, built on minimal stone foundations and made from local timber hewn to shape.

The modern versions are often built to the same or better construction standard as full size houses, but contemporary American tiny house owners relate to the early settlers’ way of life using minimal resources, and to Henry David Thoreau’s book Waldon: A Life in the Woods, an important and influential record of the author’s experiment to live a sustainable life.

However, there are hurdles to overcome in tiny house living. A major issue is identifying suitable and available sites. In both Europe and North America planning legislation is clearly aimed at conventional buildings with expensive, long-term connections to services such as water supply, drainage, electricity and gas. Obtaining permission to set up a tiny house in an urban area close to employment and resources isn’t easy.

In the UK, the problem can be even more difficult with planning permission hard to obtain unless the building type meets recognised size, type and materials guidelines. The mobility aspect of many tiny houses can be a bonus here as in theory it enables owners to take advantage of temporary sites with the capacity to relocate when permission expires, or their requirements change.

The crucial question, of course, is whether the tiny house helps solve the larger housing problem in the UK, where housing charity Shelter estimates 250,000 dwellings are needed each year. It is a possibility if planning restrictions on dwelling size and typology can be relaxed and construction companies are willing to take on such low cost work on the small sites these buildings can utilise. However, a fundamental problem of providing any affordable accommodation in property hotpots would also need to be addressed by government legislation, ensuring these desirable little residences were only occupied by their owners and not gobbled up by absentee investors.

Author: Robert Kronenburg, Roscoe Professor of Architecture, University of Liverpool

Budget 2017: government still [just] tinkering with housing affordability

From The Conversation.

It’s unsurprising that in the lead-up to this year’s federal budget there was a lot of discussion about housing affordability as its centrepiece. Over the past 20 years price-to-income and price-to-rent ratios have doubled. Sydney’s price-to-income ratio is over 12, making it the second-least-affordable city in the world. Melbourne is in fourth place.

And in a budget tableau as bland as this one, it wouldn’t have taken much to really play up the housing affordability policies.

Yet the measures in this budget involve not much more than tinkering.

On the minus side, the biggest announcement was a “first home super saver scheme”, which would allow voluntary contributions of A$15,000 per annum and A$30,000 in total (per person if in a couple) to superannuation for prospective first home buyers from July 2017. These could be withdrawn and taxed at 30 percentage points below the normal marginal rate and used for a deposit.

This will cost the government A$250 million over four years and do absolutely nothing to help first home owners. We have seen this movie before, with 50 years of first home owner grants in one form or another. All that happens is that this subsidy goes into the price of existing housing. Sellers benefit, buyers get no joy.

It’s bad economics, somewhat costly, and a cruel hoax on prospective home buyers who are struggling with an out-of-control housing market.

But the biggest minus of all was the absence of any measure whatsoever to address negative gearing and CGT exemptions for rental properties. Sorry, there is one: you now won’t able to deduct an airfare to the Gold Coast to “inspect” your rental property. The government has boxed itself in on this, with Labor having taken a plan to the last election to tackle both of these issues (full disclosure, the Labor plan bears a good deal of resemblance to my McKell Institute plan).

Nonetheless, it is reflective of the state of our politics that the one thing that could really help the most (and which the PM has agreed with very publicly in the past) is off the table.

But the measures aren’t all bad. On the plus side, there were incentives for people over 65 to downsize by allowing A$300,000 of the proceeds of a sale of their main residence to go into their superannuation, above the controversial A$1.6 million cap announced in last year’s budget.

Will the budget encourage older Australians to downsize? Maybe. One measure of how powerful an incentive it will be is that it costs only A$30 million over the four-year forward estimates period. This is not a big government spend.

It’s also unclear whether it will be a large enough financial incentive to overcome the emotional and psychological barriers to moving from the family home after many years in it. There was also a conspicuous absence of reforms to stamp duty, which is a major impediment to downsizing.

There was also good news on affordable housing with the establishment of the National Housing Finance and Investment Corporation (NHFIC). It will provide A$63.1 million over four years to operate a so-called “bond aggregator” that aims to provide cheaper financing for community housing providers. This is a good idea that should have a positive effect, and help address the high cost of funds that often plagues financing of housing for low-income earners.

Consistent with the recent populist policy announcements by this government, foreign purchasers of Australian properties were targeted in this budget. There will no longer be a capital gains tax (CGT) exemption for primary residences of foreign and temporary tax residents, and the grandfathering will only last until June 30 2019. There will also be a lower threshold for CGT withholding (A$750,000, down from A$2 million) on foreign tax residents, and the rate will be increased from 10% to 12.5%.

There were some wishy-washy words about the crucial issue of housing supply. The government has definitely identified the key role that supply plays. They are proposing a variety of “city deals” to provide incentives for zoning reform — especially in western Sydney. That’s all good, but whether it is anything more than the budget-summary feel-good headline – “Working with the states to deliver planning and zoning reform” – remains to be seen.

There was also the announcement of a tax on foreign owners who leave their properties vacant. This is supposed to raise A$16.3 million over four years — which is a rounding error in the scheme of things.

We had a housing affordability crisis before this budget, and we will have one after it. If the first step to recovery is acknowledging that one has a problem, then the government is still on step one.

Author: Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW

The Budget And Housing

The Budget included a range of measures to address housing affordability with both supply and demand measures.  Foreign investors will be hit with charges on vacant property. First time buyers will get tax breaks for saving for a deposit. There are minor tightening of negative gearing relating to travel and equipment, but otherwise remains intact.

Reducing pressure on housing affordability

Championing the great Australian dream of home ownership

The Government is providing practical solutions across the entire housing spectrum; from Australians struggling to put a roof over their head through to older Australians looking to downsize.

Access to secure and affordable housing can improve education and health outcomes, increase workforce participation and reduce welfare dependency.

However, an extended period of price growth, particularly in Sydney and Melbourne, is creating pressure across the housing spectrum.

Potential first homebuyers are struggling to transition into home ownership and are staying in the rental market for longer. This has put upward pressure on rental prices.

As a result, households on lower incomes are finding it increasingly difficult to find affordable rental properties. This has led to longer waiting lists for public and community housing.

Improving housing affordability right across the housing spectrum must be a key objective for governments at all levels. There is no silver bullet. The response must be well targeted and coordinated.

A key factor behind rising prices in some major cities has been supply failing to respond to demand. A period of weak construction activity in the mid-to-late 2000s left these cities undersupplied, resulting in pent-up demand.

Despite record housing supply in recent years, more homes are needed for Australians. Not just for homeowners, but for renters, key workers such as nurses, teachers and police officers who can’t afford to buy or rent and those on lower incomes.

The current National Affordable Housing Agreement (NAHA) lacks accountability and transparency. Despite the Australian Government providing the States with over $9 billion since 2009, the NAHA has failed to achieve its objectives.

The Government is providing national leadership to work together with State and Territory governments to reduce pressure on housing affordability.

This Budget contains a comprehensive and targeted reform plan to improve outcomes across the housing spectrum.

A targeted and comprehensive plan

Unlocking supply

The Government will help boost the supply of housing and will encourage a more responsive housing market by:

  • Providing $1 billion to fund critical infrastructure, such as water infrastructure, that will speed up the supply of housing
  • Working with the States to deliver planning and zoning reform that speeds up development
  • Releasing suitable Commonwealth land, starting with Defence land at Maribyrnong in Melbourne, for housing development
  • Investing more than $70 billion from 2013-14 to 2020-21 on transport infrastructure across Australia
  • Specifying housing supply targets in new agreements with the States and Territories

Creating the right incentives

The Government is creating the right incentives to improve housing outcomes, including:

  • Helping first home buyers to save a deposit through voluntary contributions into superannuation
  • Reducing barriers to downsizing to free up larger homes for families
  • Improving the targeting of housing tax concessions
  • Strengthening the capital gains tax rules so that foreign investors pay their fair share of capital gains tax
  • Reforming foreign investment rules to discourage investors from leaving their property vacant
  • Supporting economic growth and jobs to boost real wages

Improving outcomes for those most in need

The Government will improve outcomes in social housing and homelessness by:

  • Requiring States and Territories to meet social and affordable housing targets under revised funding arrangements
  • Providing $375 million to give funding certainty to providers of homelessness services
  • Establishing a National Housing Finance and Investment Corporation to operate an affordable housing bond aggregator
  • Providing tax incentives to increase private investment in affordable housing

Helping first home buyers

Many Australians, particularly younger Australians, are finding it harder to save for their first home.

The Government will make this savings task easier by allowing first home buyers to build a concessionally taxed deposit inside superannuation through the First Home Super Saver Scheme.

From 1 July 2017, first home buyers can contribute up to $15,000 per year and $30,000 in total in voluntary contributions to their superannuation account, within existing contribution caps, that can then be withdrawn for their deposit. These savings will benefit from the tax advantages of superannuation. Contributions and earnings will be taxed at only 15 per cent, rather than at marginal rates, and withdrawals will be taxed at marginal rates less 30 per cent. Both members of a couple can save within the cap and then combine savings for a single deposit.

Boosting Louise and Craig’s first home deposit

Louise earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $27,380 of contributions and the deemed earnings on those contributions. After withdrawal tax, she has $25,760 that she can use for her deposit. By using this scheme, Louise has saved around $6,240 more for a deposit than if she had saved in a standard deposit account.

Louise’s partner, Craig, makes the same income and salary sacrifices $10,000 annually to superannuation over the same period.

Together, after 3 years, Louise and Craig have $51,520 for their first home, $12,480 more than if they had saved in a standard deposit account.

Reducing barriers to downsizing

Older Australians will be encouraged to downsize and free up housing stock. These homeowners will be given greater flexibility to contribute the proceeds of the sale of their home into superannuation. Downsizing frees up larger homes for younger families.

From 1 July 2018, people aged 65 and older will be able to make a non-concessional contribution of up to $300,000 to their superannuation after selling their home. This will be in addition to any other contributions they are eligible to make.

Helping George and Jane downsize

George and Jane, both retired and aged 76 and 69, sell their home to move into more appropriate accommodation. The proceeds of the sale are $1.2 million. They can both make a non-concessional contribution into superannuation of $300,000 from the sale proceeds ($600,000 in total), even though Jane no longer satisfies the standard contribution work test and George is over 75. They can make these special contributions regardless of how much they already have in their superannuation accounts.

Tightening foreign investor rules

The Government will stop foreign and temporary tax residents from claiming the main residence capital gains tax exemption when they sell their Australian property.

To reduce avoidance of capital gains tax in Australia by foreign residents, the Government is bolstering the integrity of the foreign resident capital gains tax withholding system by increasing the rate from 10 per cent to 12.5 per cent and reducing the threshold from sales valued at $2 million or above to $750,000 or above.

Helping private renters

A new annual charge of at least $5,000 will apply to new foreign-owned properties left vacant which will free up more rental housing stock.

The Government will also work with the States and Territories to develop standard long-term leases that offer more security to renters.

Improving regulator tools to address housing risks

The Government is ensuring that the Australian Prudential Regulation Authority (APRA) is able to respond flexibly to financial and housing market developments that pose a risk to financial stability. This includes giving APRA new powers over the provision of credit by lenders that are outside the traditional banking sector.

The Government also recognises that housing pressures and risks may not be the same in markets across Australia. For this reason, the Government will make it clear that APRA has the ability to use geographically-based restrictions on the provision of credit where APRA considers it appropriate.

Better targeting tax deductions

The Government will improve the integrity of the tax system by disallowing accommodation and travel deductions for residential rental property and by limiting depreciation deductions for the plant and equipment forming part of residential investment properties.

Together with changes to foreign investor rules, these changes will raise $1.4 billion over the forward estimates period.

Building more homes

Boosting supply and speeding up the delivery of new housing

National Housing Infrastructure Facility

The high costs of building critical infrastructure, such as roads and water networks, can delay the commencement of housing developments and slow the supply of new homes.

A $1 billion National Housing Infrastructure Facility will be established to provide a range of financing options to local governments. This will allow councils to address infrastructure bottlenecks that impede development and will bring forward the supply of new housing.

Unlocking Commonwealth land

The Government is contributing to the supply of housing by making sure Commonwealth surplus land holdings are put to better use, including for building new homes.

More than 127 hectares of surplus Defence land in Maribyrnong will be made available for housing and employment hubs. This could support up to 6000 new homes – less than 10 kilometres from the Melbourne CBD.

The Government will work with the Victorian and local governments to ensure the right infrastructure is in place, so that this land can be developed as fast as possible.

The Government is developing an online registry of Commonwealth land holdings. This will allow other levels of government, private businesses and community groups to bring forward proposals to put the land to better use, including for housing development.

Reforming State Payments

The current National Affordable Housing Agreement is not achieving its objectives. The Government will establish a new National Housing and Homelessness Agreement with State and Territory governments that is outcomes-based and reduces pressure across the housing spectrum.

The new national agreement will reward States that meet housing supply targets that better keep pace with demand, including targets for social and affordable housing. New housing that is offered exclusively to first home buyers will be encouraged.

The Government will bring forward and increase the supply of new homes by rewarding state land use planning reforms that speed up development application processes and allow for increased density in appropriate areas.

Better connecting home and work

The Government is committing more than $70 billion to infrastructure from 2013-14 to 2020-21 to reduce congestion, grow regional communities and better connect home to work.

In this Budget, the Government is establishing a $10 billion National Rail Program to fund priority regional and urban rail investments. Funding will also be provided for up to three business cases for infrastructure projects that will deliver faster rail connections between major cities and major regional centres.

The Government is working with State, Territory and local governments on City Deals that make cities better places to live and do business in.

The Government is working with the New South Wales and local governments on a Western Sydney City Deal that will help ensure the housing needs of the region are met.

The HIA has commented:

The focus on housing in tonight’s Budget is an important step in addressing the complex housing affordability challenge that Australia faces according to Housing Industry Association.

Graham Wolfe, HIA Deputy Managing Director said “the Budget’s housing focus will send important signals to state and local governments and the community that the Government is serious about meet the challenge of delivering more affordable housing

“There are no simple solutions but providing well targeted assistance to help first home buyers save for their first home and to providers of community housing through the ‘National Housing Finance and Investment Corporation’ will make a difference.

“Although not an affordability measure, the incentives for ‘downsizers’ will also help stimulate the supply of new housing more appropriate to the needs of our seniors.

“Much of the work to improve housing affordability rests with state and local governments and the Budget has made significant commitments to encourage action. The National Housing Infrastructure Facility has $1billion behind it is more than just window dressing.

“Linking the National Housing and Homelessness Agreement’s $1.8 billion to the states and local governments delivering improved housing supply and better planning systems is a significant and welcome reform.

“The ‘city deals’ expansion into smaller scale projects is also a welcome development: the big ticket projects are important but much can be achieved by removing obstacles to more efficient delivery of homes.
“However HIA is concerned about the negative impacts on residential building from the Budget’s measures on foreign investment.

“Plans to tax vacant homes, limit the share of foreign investment in new projects and increase foreign investor duties all send exactly the wrong signal to potential investors in Australia. Barriers to investment are not productive for the building industry or the economy more broadly; investment needs to be encouraged.

“HIA would urge the Government to build on the Budget’s initial steps towards more affordable housing by making this a standing item on the COAG agenda.

“In the meantime HIA will continue to urge the Government to undertake a thorough national inquiry into housing affordability and establish a mechanism for the regular monitoring of the crucial supply of land for the residential building industry”, Mr Wolfe concluded.

Record numbers of home owners approaching Mortgage stress

From Ten Eyewitness News

When it comes to paying off the Mortgage, it’s a slippery slope that could see the entire house of cards come tumbling down.

New figures released by the Australian National University have found that one in five Aussies are constantly struggling to pay their mortgage, while others have admitted to falling behind.

The results showed that almost one in every four mortgage holders would face difficulty keeping up with their repayments if interest rates increased by two percentage points.

It’s an ugly picture to paint, with one of four households nationwide in mortgage stress, Digital Finance Analytics principal Martin North said the risk of default was rising, especially in areas where underemployment and unemployment were also rising.

“Mortgage stress continues to rise as households experience rising living costs, higher mortgage rates and flat incomes,” Mr North said.

“Expected future mortgage rate rises will add further pressure on households.”

Tuesday’s Federal budget is predicted to contain housing affordability measures, but the ANU poll found 68 percent of those not in the housing market are concerned they will never be able to afford a home.

It’s a stark contrast; 75 percent of those surveyed believe owning a home is part of the Australian way of life, yet 87 percent are concerned future generations won’t be able to afford to buy a house.

Associate Professor Ben Phillips said the survey showed support for an increase in the supply of housing and public housing.

“The ANU poll also found almost half of homeowners would be willing to see their property stop growing in value to improve housing affordability while only 31.8 percent would not.

“This may suggest that the issue of housing affordability is acute enough that Australians may accept policy change that could reduce prices or the rate of price growth to allow more equitable access to the housing market,” he said.

Taxation Revenue From Property Continues to Climb

Nice piece from CoreLogic on the growth in property related taxes. As we pointed out before, the states are major winners when property markets rise (and would be hit badly in a slowing market).

The latest data shows that state and local governments collected 51.9% of their total taxation revenue from property, a record high proportion

The Australian Bureau of Statistics (ABS) has recently released the latest taxation statistics data for the 2015-16 financial year.  From a property perspective, taxes are largely collected from state and local governments and over the year $49.567 billion in property taxes were collected nationally.  The value of property taxes collected was 9.6% higher over the year and accounted for a historic high 51.9% of total state and local government revenue.

Total value of property taxation revenue to
state and local governments

2017-05-08--image1

Stamp duty on conveyances accounted for the largest overall proportion of property tax revenue. Over the 2015-16 financial year, state and local governments raised $20.607 billion in revenue from stamp duty, accounting for 41.6% of total property tax revenue.  The second chart highlights the value of revenue from stamp duty on conveyances and the proportion of total property tax revenue coming from stamp duty.  As a proportion of total property tax revenue, stamp duty has previously been higher however, over the past few years there has been a substantial increase in the value of revenue collected from stamp duty.

Value of stamp duty on conveyances tax
revenue and % of total property tax revenue

2017-05-08--image2

The third chart highlights the revenue collected from stamp duty across each of the major states.  It is pretty easy to see what booming housing markets do for state government coffers with the NSW and Vic governments seeing stamp duty revenues surge.  Of course, when the housing market isn’t booming it has a substantial impact on stamp duty revenue, see NSW and Vic in 2008-09 and WA more recently.  The uncertainty surrounding stamp duty and its dependence on stock turnover makes it an inefficient and volatile source of taxation revenue.  Because stamp duty is only collected from properties which transact, the state governments are relying on values and transactions rising across the 5% to 7% of properties which turnover in any given year to drive their major source of property tax revenue.

Value of stamp duty on conveyances tax
revenue across the major states

2017-05-08--image3

The final chart highlights the three largest sources of property tax revenue; land tax, municipal rates and stamp duties on conveyances.  Between them, these three sources of tax revenue accounted for 90.3% of all property related tax revenue to state and local governments in 2015-16 and 46.9% of total taxation revenue.  We already know that $20.607 billion in tax revenue came from stamp duty on conveyances, a further $7.237 billion came from land taxes and $16.924 billion came from municipal rates.

Major sources of property taxation revenue
over time

2017-05-08--image4

Land taxes and municipal rates are much more guaranteed income streams than the more volatile stamp duty on conveyances.  For this reason, it would make sense to move from stamp duty to a much more efficient, easier to collect and holistic land tax.  The reality is that any such move is unlikely to be supported by the NSW and Vic governments currently given how much revenue these states continue to rake in due to the ongoing housing booms in Sydney and Melbourne.

Budget 2017: Prepare to be disappointed on housing

From The New Daily.

Despite all its huff and puff on housing, a senior economist has warned voters the government will disappoint on the one reform almost everyone wants.

Professor Richard Holden said it would be a “real shame but no surprise” if Tuesday’s federal budget failed to curb tax perks for property investors.

“There is now consensus that there should be a move away from negative gearing and to prune back the capital gains discount. I think everyone agrees except the government and maybe the Property Council,” he told The New Daily.

“It’s very hard to find anybody else. You’ve got Jeff Kennett, John Hewson, Malcolm Turnbull before he became Prime Minister. Everyone seems to agree it’s a bizarre system that’s driving up prices.”

What’s in the housing package? Click to find out

After haemorrhaging support to Labor by doing nothing to help first home buyers in his pre-election 2016 budget, Treasurer Scott Morrison spent the end of last year swearing he’d focus on housing affordability this time around.

He’s been forced to walk back some of that rhetoric, as policy options evaporated under pressure from Labor, interest groups and the Abbott faction.

What hasn’t changed is Mr Morrison’s pledge not to touch negative gearing. But he’s been less emphatic on the capital gains tax discount, which allows landlords to pay tax at their marginal rate on only 50 per cent of the capital gains they realise when they sell a property.

A wide array of experts, including Richard Holden, agree these tax perks favour wealthy investors, and contribute to the difficulty of young Australians entering the property market, at least in Sydney and Melbourne.

A new survey by CoreLogic, a property data firm, found that 87 per cent of non-home owners are concerned about affordability; 30 per cent are looking to inheritance or parents to help them buy; and 62 per cent living with parents say they can’t afford to move out. It surveyed 2010 people aged 18 to 64.

By CoreLogic’s estimate, houses cost 7.2 times the yearly income of an Australian household, up from 4.2 times income 15 years ago. And a 20 per cent deposit costs 1.5 years of household income, up from 0.8 years.

Professor Holden was more enthusiastic about incentives for older Australians to downsize to smaller homes, especially if that involves a stamp duty discount.

“Stamp duty is like the worst tax in the history of the world and everyone with a minute’s economic education thinks it should be replaced with a land tax, so anything that pushes in that direction is a good idea.”

However, if the incentive allowed wealthy individuals to exceed the superannuation balance cap, that “would be a concern, depending on how it’s structured”.

Professor Holden also praised the government’s push to invest more in affordable rental housing: “The idea that housing affordability bites at the very lowest end is a really big deal.”

But he rubbished the government’s proposal to offer subsidised savings account to help first home buyers save a mortgage deposit.

“We saw the government float the idea of accessing super. Now, myself and Saul Eslake and others all came out vociferously and angrily against that. I don’t know if it was causal, but they backed down,” Professor Holden said.

“But now they’re talking about tax-preferred savings accounts for first home buyers, and for the life of me I can’t understand why they can’t seem to get through their heads that anything of that nature is just boosting demand.”

Daniel Cohen, co-founder of lobby group First Home Buyers Australia, said he disagreed with the view that subsidised savings accounts would only push up prices.

“As a standalone policy, they are correct, which is why we want to see policies that are also decreasing demand from investors, and we want to see affordable supply also increase,” Mr Cohen told The New Daily.

“What economists are not considering, I feel, is that first home buyers still have a deposit hurdle, and with the current costs of living, average wages and stamp duty, that is a really big hurdle.”

He said the accounts would act as “financial literacy” to encourage young Australians who might not have considered it to save for a home.

For Mr Cohen, the biggest budget disappointment would be no reform on negative gearing and capital gains.

Auction Softening Trend

From CoreLogic

This week, 1,662 capital city auctions were held and preliminary results show that 1,365 auctions have been reported so far, with a preliminary clearance rate of 74.6 per cent, rising from a final clearance rate of 74.0 per cent last week across 2,350 auctions.  While clearance rates remain above the long term average across the largest capital cities, the rolling four week average reveals a softening trend which can be attributed to Sydney’s final clearance rate drifting lower over the past two months while the trend in Melbourne is holding firmer in the high 70.0 per cent range.  Preliminary results show that while Melbourne and Sydney maintain their place as the strongest auction markets, Adelaide and Brisbane have shown a rebound in the downwards clearance rate trend this week.  This week’s combined capital city preliminary clearance rate is stronger than one year ago, when 67.7 per cent of capital city properties cleared, however auction volumes are lower than this time last year when 2,230 homes were taken to auction across the combined capitals.

Auction Numbers Down

The preliminary data from Domain shows that the number of listings are down, though clearance rates are still quite high. Nationally, 721 properties were sold, compared with 1,286 last week and 1,043 a year ago.  Looks like momentum is indeed easing.

This equates to a 74.3% clearance compared with 73.9% last week and 66.8% a year ago. Sydney achieved 265, at 73.6% compared with 539 at 75.3% last week, and Melbourne sold 721, compared with 1,286 last week,  at 78.7% this week and 76.1% last week.

Brisbane cleared 55% of 69 listings, Adelaide 62% of 74 listings and Canberra 55% of 36 listed.

The Property Imperative Weekly 6th May 2017

The latest edition of our weekly summary of events in the finance and property industry has been released, a week in which the RBA told us more about household finances, major banks reported lifts in delinquencies and the number of households in mortgage stress continued to rise.

You can watch our video summary.

We start our review of the week by looking at data from the RBA. They held the cash rate again, and in a speech Governor Philip Lowe said the bank is not overly concerned that a “severe correction in property prices” would trigger a banking collapse, as happened in the US in 2008-09. However, he was far more worried that Australians would bring the economy to a grinding halt by curbing their spending. He said Household debt is “high” relative to incomes, making it likely that many Australians would respond to a market correction with a “sharp correction in their spending”, in an attempt to pay down debt. As a result, an otherwise manageable downturn could be turned into something more serious.

He also made the point that allowing young Australians to use their superannuation for a deposit will not assist affordability and downplayed the importance of tax policies. “The best housing policy is really a transport policy,” he said during a question-and-answer session. The latest RBA chart showed household debt rose again.

The Quarterly Monetary statement highlighted the risks from low income growth, although the underlying causes are not that clear, and that the Bank is still relatively optimistic about future growth. However, again the theme of high household debt came to the fore with data showing that one third of households had no mortgage repayment buffer. It’s worth saying this data comes from securitised loans which may be regarded as the cream of the crop, so risks in other portfolios may be higher.

We have several results in the week, with impressive full year numbers from Macquarie; but less impressive results from NAB, ANZ and Genworth, the Lenders Mortgage Insurer. From this we learnt that delinquencies are rising, especially in the mining heavy states of WA and QLD. Genworth in particular reported a rise in claims. Whilst tighter lending rules are lower the LVR bands, heightened risks seem to be baked in.  Yellow Brick Road, who also reported, highlighted the impact of recent regulatory tightening on the mortgage sector.

We also saw how the retail banks net interest margins are under pressure, this despite recent mortgage rate rises, and hikes to the small business sector, which is the soft underbelly of the portfolio when banks seek to recover NIM. NIM is being hit by the higher capital requirements which are being imposed on the banks. This suggests that more out of cycle rate rises are likely, despite the fact that funding costs appear to have stabilised.

According to the HIA, new home sales fell slightly in March down 1.1% mainly due to fall in new houses; but there were significant state variations, with NSW the only state to record an increase in detached house sales, posting a 10.4 per cent rebound after a soft result in February. Detached house sales fell by 4.6 per cent in Victoria, by 5.4 per cent in Queensland and fell in South Australia and Western Australia by 1.7 per cent and 1.2 per cent respectively.

We released the latest mortgage stress report, which showed of the 3.1 million mortgaged households, an estimated 767,000 are now experiencing mortgage stress. This is a 1.5% rise from the previous month and maintains the trends we have observed in the past 12 months. The rise can be traced to continued static incomes, rising costs of living, and more underemployment; whilst mortgage interest rates have risen thanks to out-of-cycle adjustments by the banks and bigger mortgages thanks to rising home prices.

We think the affordability calculations the banks use need to be reviewed, and the regulators need to do more to get to the bottom of the continuing reclassification of loans between owner occupied and investment – more than $51 billion have been switched, which is around 10 per cent of all investor loans.

Next week we will publish our stress by post code data, and the latest household finance confidence index.

The speculation around whether Sydney home prices are wobbling continues, with the latest CoreLogic numbers flagging a potential fall. But one swallow does not make a summer, and we will need to see more data. Remember there are technical issues behind the CoreLogic index. Auction clearance rates were relatively good, but on lower volumes. We will see what today’s results deliver.

Finally, we expect more discussion on the future shape of capital requirements for the banks, with the Reserve Bank of New Zealand announcing it is undertaking a comprehensive review of the capital adequacy framework applying to locally incorporated registered banks over 2017/18. The aim of the review is to identify the most appropriate framework for setting capital requirements for New Zealand banks, taking into account how the current framework has operated and international developments in bank capital requirements.

In the UK, the Bank of England released details of their approach to setting MREL (a minimum requirement for own funds and eligible liabilities) for UK banks, building societies and the large investment firms. These rules represent one of the last pillars of post-crisis reforms designed to make banks safer and more resilient, and to avoid taxpayer bailouts in future.

Banks are now required to hold several times more loss-absorbing resources than they did before the crisis, while annual stress tests check firms’ resilience to severe but plausible shocks. Banks are now also structured in a way that supports resolution and The Bank of England has the legal powers necessary to manage the failure of a bank, and significant progress has been made to ensure there is coordination between national authorities should a large international bank fail.

We are expecting APRA to release a discussion paper on capital rule tweaks to ensure our banks are unquestionably strong later in the year. This all signals potential higher interest rates for consumers and small business down the track, as more capital is costly.