The AFR reports today that Scott Morrison is advocating increasing supply as the recipe to solve the current housing issues, and is standing firm against a crescendo of calls to curb negative gearing tax breaks (though may be more amenable to capital gains changes).
I was reflecting on the current state of play, given RBA, APRA, ASIC (three members of the Council of Financial Regulators – the Treasury being the fourth) are all underscoring the risks in the housing sector. Investors are in the firing line. Logically, negative gearing should be curbed.
But then I started to consider the political agenda, and wondered if there are parallels with the second class service the current NBN solution is delivering; at least to me. Essentially, Turnbull wound back Labor’s fibre to the end-point solution by arguing that there was a better, cheaper, quicker way. It became do anything BUT what Labor proposed. The result, in my case at least is a slow, unreliable NBN solution, unable to deliver acceptable bandwidth at peak times, and no upgrade path. The political battle may have been won, but the end outcome is frankly horrid. As a digital business we suffer the result every day! The cabinets on the local street corners (now daubed with tags and grafiti) will be a lasting tangible monument to a politically catalysed outcome.
But, now, are we seeing the same with Negative Gearing changes, which Labor proposed, and which have been opposed by the Government ever since? Has it become caught in the same trap as the NBN? Had Labor kept it’s power dry, would we have seen changes to negative gearing already?
Could it be that on principle, the Government won’t concede this to Labor, and so will literally go round the houses to avoid changes to negative gearing?
This despite the many calls, from responsible and well informed sources who say that it is the tax breaks which are driving the investment property sector. This is also confirmed in our surveys.
Will the legacy of the unwillingness to tackle such a core element in the landscape cost us a housing crash? As we argued recently, it is looking more likely that we will need a correction to defuse the current heady trends.
But if the needs for a political wins outweighs good policy, it is highly likely we will get the housing equivalent of the NBN. We think Australia deserves better.
Now that the first stage of a cut to the corporate tax rate has been passed by the Senate it’s clear the benefits are more political than economic. The cut may signal to the world that Australia wants to be competitive on corporate tax, but it won’t make much of a difference to our largest businesses and multinationals.
Company tax cuts have been on the government’s agenda since the 2016 budget, when the cuts were announced. Ultimately, the plan was to reduce the corporate tax rate from 30% to 25% by the 2026-27 financial year for all companies.
The government has secured a cut to businesses with a turnover of under A$50 million, with companies with a turnover of less than A$10 million receiving a reduction in their tax rate (to 27.5%) this financial year. But the second stage of the tax cut is still to be passed, that would give a cut to businesses with a turnover of A$100 million in 2019-20.
The impact is all in Australia’s image
Arms of multinational companies often pay a much lower effective tax rate when compared to their parent company. Until politicians across the globe can agree how to ensure companies pay tax on local earnings, which appears unlikely in the near future, tax rates will remain a signal to multinationals on where to base their business.
The tax cuts have been strongly supported by big companies and even more so by the Business Council of Australia. A major reason put forward by the business community is the need to stay competitive in a global environment.
Our major trading partners such as the United Kingdom and United States are planning to drastically reduce their corporate tax rates and countries such as Ireland (12.5% on corporate trading profit) and Singapore (by 2018 20% capped at $20,000) already have very low corporate tax rates in place. Multinational corporations have the ability to profit shift to lower taxing jurisdictions.
For instance, a multinational can employ tax accountants to structure ownership of intellectual property in a low taxing jurisdiction and reduce gross income by license fees, or via debt loading to a parent company. Tax avoidance is often siphoned through a non-reporting subsidiary, so these accounting tricks occur without the glare of public scrutiny. In other instances multinationals have been able to completely bypass Australian tax by booking revenues overseas.
How it will affect accounting for Australian companies
When you look at what a tax cut might mean to Australian companies, it’s not hard to envisage how a tax cut tied to a specific revenue level creates incentives for accountants and lawyers to exploit new thresholds.
Accounting research from the United States shows companies do take into account tax when considering how to report their profits. For example, a typical strategy is to delay recognising an expense that belongs in the current year, until the next year.
This is usually to make it seem like the company has increased its profits, making it appear better to shareholders. However there have been no studies specifically relating to how companies might do this in relation to revenue (what the Australian government is considering for the tax cut).
At any rate, the net rate of tax on Australian company profits is considerably lower than the current 30% (or the new 27.5%) company tax rate. According to our calculations it should be around 11.3%. This is lower than the company tax rate in other similar economies.
There’s also something unique to Australia which means private companies pay less tax and that’s dividend imputation. This is designed to eliminate the double taxation of dividends in the hands of Australian shareholders.
Since it’s introduction in 1987, dividend imputation has provided strong incentives for firms to pay the full statutory tax rate on all reported profits. The tax paid on dividends flowing to Australian shareholders of Australian companies is reduced by an amount equal to the tax already paid by the corporation, this is known as imputation credits. A shareholder’s marginal tax rate, and the tax rate for the company issuing the dividend, both affect how much tax an individual shareholder owes on what is called a fully franked dividend.
Companies that pay fully franked dividends in Australia, pay on average over 10% additional tax on the same level of earnings than companies not paying franked dividends. Approximately 62.3% of imputation credits are utilised by resident shareholders.
The average effective tax rate of Australia’s largest private companies are much lower than that of the largest public companies (most of which pay fully franked dividends). You can see this in the table below which shows the effective tax rates calculated by two separate studies.
One of the studies by the union United Voice looked at the ASX200 companies and the otherby lobby group GetUp examined the largest private companies operated by foreign multinationals.
The corporate tax rate does figure in investment decisions of Australian companies and foreign companies wanting to do business in Australia. However, the rate of corporate tax is at best a second order effect in influencing the decisions of foreign companies. Therefore, the gains from the government win in the Senate appear to be more political than economic.
At best the tax cut may somewhat reduce the burden on smaller Australian companies, albeit at a significant cost to the budget, without impacting the largest Australian and foreign multinationals. Although prospects for further tax cuts for the big end of town (which has a greater impact on the economy) are unlikely in the next five to 10 years without Senate crossbencher support.
Authors: Brett Govendir, Lecturer, University of Technology Sydney; Roman Lanis, Associate Professor, Accounting, University of Technology Sydney
As the federal budget approaches, the government is grappling with ways to enhance housing affordability, including reforming the current 50% capital gains tax (CGT) deduction on property investment.
The Economics Society of Australia (ESA) Monash Forum polled economists on this proposition:
Capital gains tax deductions for housing investment should be removed because they overstimulate the housing market, contributing to rising house prices.
This is a deliberately more extreme measure than the proposal reportedly being considered by the federal government, which is to cut the current discount to 25%. But we wanted to assess more generally the effect of capital gains taxes on the housing market.
The poll found 44.4% of economists agreed with a statement that the tax deduction should be removed entirely (22.2% agreeing and 22.2% strongly agreeing). But 40.7% disagreed with the statement (22.2% disagreeing and 18.5% strongly disagreeing); while 14.8% of respondents were uncertain.
While some economists support the current role of the CGT discount to avoid taxing the capital gains that arise as a result of inflation increasing house prices, as opposed to the valuation in the land or property due to development (Saul Eslake, Rodney Maddock, Nigel Stapledon and Doug McTaggart), others believe the tax should also apply to the gains as a result of inflation (Kevin Davis and Margaret Nowak).
Many argued the principle of the CGT discount is not a bad policy, however the level of the discount is generous and is open for abuse.
They also pointed out that changes in one type of tax will distort the economy, especially if it is only targeted to one type of asset, in this case property. Instead some economists suggested the approach should be a holistic reform to fix tax inefficiencies, and tax treatment should be equal between all forms of investment and saving.
Most of the economists agreed housing affordability policies should be focused mainly on housing supply and housing market constraints (as well as transport and infrastructure) to solve the crisis. Other policies such as shared-ownership schemes and government-backed bonds are also being considered.
Capital gains tax
The capital gains tax (CGT) is calculated at the effective marginal tax rate of the investor, on the capital gains made at the time of sale of the asset. Investors who hold an asset for longer than 12 months receive a 50% discount on the CGT liability, at the time of sale. For superannuation funds, the discount rate is 33.3%.
Owner-occupiers are fully exempt from capital gains tax on the sale of their primary residence.
Some of the options reportedly being considered by the federal government include decreasing the CGT concession to 25%, decreasing it to 40% discount (as recommended in the Henry Tax Review) only for property investments, or some other reduction in the CGT discount for property investments.
Another option is completely removing the concession if the property is sold in the initial investment years; and phasing the discount in after the investment has been held for some specified number of years.
The economists’ arguments for and against
Economists who supported removing capital gains tax deductions for housing investment said the discount provides incentives to over-invest in property rather than other assets that provide income. So by eliminating or reducing the CGT discount, the cost of capital will increase and buyers will reduce their demand for property, resulting in lower, more affordable house prices.
Those who agreed with the statement argue any change in the CGT discount to address property speculation should also be accompanied by reforming negative gearing. They argue that eliminating the CGT discount for property only would push residential investors towards cheaper properties or towards investing in other assets that maintain the CGT discount.
Most studies find no evidence of capital gains advantages being a main incentive for investors holding residential property. However it appears to be a small factor in the intention of investing in residential property.
Those against the statement argue the timing may not be right as the housing cycle is currently at its peak, and the double digit house price appreciation rates are only seen in the inner-ring suburbs of metropolitan cities and only for houses and not apartments.
Economists would expect to see only a short-term drop in house prices if the CGT deductions are eliminated, as investors switch away from property and into other assets. So the remaining residential investors in the market would purchase cheaper properties, potentially still crowding out first-home buyers.
They would also hold the property for a longer period. In the medium to long-term, the reduction in residential investment would impact on the new and existing supply of housing, resulting in housing shortage and rising house prices.
You can read the economists’ individual answers by clicking below.
The ESA Monash Forum is a joint initiative between Monash Business School and the Economic Society of Australia. Maria Yanotti was a guest writer for the Forum.
A recent United Nations report on the right to adequate housing identifies the financialisation of housing as an issue of global importance. It defines the financialisation of housing as:
… structural changes in housing and financial markets and global investment whereby housing is treated as a commodity, a means of accumulating wealth and often as security for financial instruments that are traded and sold on global markets.
The UN Special Rapporteur on the Right to Housing argued that treating the house as a repository for capital – rather than a place for habitation – is a human rights issue. Leilani Farha explains her role as the UN Special Rapporteur on the Right to Housing
The financialisation of housing has been central to wealth creation in Australian households since at least the second world war. Today, it underwrites the bank of mum and dad, amateur property investors as landlords, asset-based welfare, and foreign real estate investment.
Australia’s financialised housing system
Following Prime Minister Robert Menzies’ “Forgotten People” speech, Australian governments have effectively subsidised housing investment through taxation incentives for home ownership.
Capital gains exceptions, the exclusion of the primary home from pension calculations, negative gearing, tenancy policies that favour property owners, less restrictive mortgage financing arrangements and first home owner grants are commonly cited examples.
These policies and practices underpin many of the benefits of property investment. But they also change the way Australians think about their home. Houses have shifted from being valued as a place to live and to raise a family towards being viewed also as a place to park and grow capital.
This strongly influences Australians’ decision-making about buying and selling property. It also affects how they think about and use housing equity for business, retirement, family and other purposes.
21st-century winners
Owner-occupiers and property investors benefit most from a financialised housing system.
While many Australians own investment properties, these investors tend to be amongst the wealthiest in our society, challenging the myth of the “mum and dad” investor. The Household, Income and Labour Dynamics in Australia (HILDA) Survey shows, for example, that “over 50% of owners are in the top wealth quintile, and over three-quarters are in the top two quintiles”.
Property investors also tend to have higher incomes, with 70.3% earning in the top 40% of all incomes. They can access their housing equity by buying and selling when market conditions are right. The home can also be treated like an ATM via redraw mortgages.
Richard Ronald recently highlighted the emergence of “Generation Rent”. While some young people will eventually inherit from their parents, those whose parents rent or are over-leveraged mortgage-holders are increasingly shut out of home ownership.
This suggests a growing polarisation in housing opportunity.
People earning middle and lower incomes, younger people whose parents are not home owners and women who have lost a home or never gained housing wealth are among the most disadvantaged.
People living in public, social and other “affordable housing” can be doubly disadvantaged.
First, due to their affordable housing tenure, these groups have not built any capital in their housing.
Second, some residents face eviction through large-scale public housing redevelopments by governments that view their homes as key real estate assets.
Housing experts call for action
In their book, David Madden and Peter Marcuse explain how to definancialise the housing system.Verso Books
David Madden and Peter Marcuse have shown how to definancialise a housing system. They argue that even the term “affordable housing” is a financialised way of thinking about housing provision.
They call for an increase in public and social housing, and for an end to the eviction or rehousing of public and social housing tenants. Some affordable housing advocates agree, arguing for an increase of “at least 2,000 new dwellings a year for ten years” in New South Wales alone.
More affordable housing and low-cost social rentals, which peg housing costs to income, are needed. Government and not-for-profit builders could provide such housing. This would also require “new ways to finance affordable-rental housing”.
Private rentals need to be more secure, too, so tenants have the regulatory support to treat their housing like a home. Removing no-cause eviction is an important start.
A long-term plan for overhauling the taxation system is key. This would, however, need to limit the financial risks to current home owners and investors.
A slow winding back of tax breaks for investment properties would encourage property owners and investors to move their housing wealth into other asset classes over the long term.
This would help to ameliorate the current “distorted investment pattern that disadvantages the supply of affordable rental housing”.
Authors: Dallas Roger, Senior Lecturer, Faculty of Architecture, Design and Planning, University of Sydney; Emma Power, Senior Research Fellow, Geography and Urban Studies, Western Sydney University
Treasurer Scott Morrison wants to use the May budget to ease growing community anxiety about housing affordability. Lots of ideas are being thrown about: the test for the Treasurer is to sort the good from the bad. Reports that the government was again considering using superannuation to help first homebuyers won’t inspire confidence.
It’s not the first time a policy like this has been floated within government. While these latest ideas to use super to help first homebuyers are marginally less bad than proposals from 2015, our research shows they still wouldn’t make much difference to housing affordability.
A seductive idea with a long history
Allowing first homebuyers to cash out their super to buy a home is a seductive idea with a long history. Both sides of politics took proposals to the 1993 election, before Prime Minister Paul Keating scrapped it upon his re-election.
Former Treasurer Joe Hockey last raised the idea in 2015 and was roundly criticised, including by then Coalition frontbencher Malcolm Turnbull.
Politicians are understandably attracted to any policy that appears to help first homebuyers build a deposit. Unlike the various first homebuyers’ grants that cost billions each year, letting first homebuyers cash out their super would not hurt the budget bottom line – at least, not in the short term. But as we wrote in 2015, that change would push up house prices, leave many people with less to retire on, and cost taxpayers in the long run.
Having learned from that that experience, the government has instead flagged two different ways to use super to help first homebuyers. Neither proposal would make the mistake of giving first homebuyers complete freedom to access to their super. But nor would they make much difference to housing affordability.
Using voluntary super savings for deposits
The first proposal reportedly supported by some in the Coalition, but now denied by the Treasurer, would allow first homebuyers to withdraw any voluntary super contributions they make to help purchase a home. Any compulsory Super Guarantee contributions, the bulk of Australians’ super savings, could not be touched.
Using super tax breaks to help first homebuyers build their deposit would level the playing field between the tax treatment of the savings of first homebuyers and existing property owners.
First homebuyers’ savings typically sit in bank term deposits, where both the initial amount saved and any interest earned is taxed at full marginal rates of personal income tax. In contrast, the nest eggs of existing property owners are taxed very lightly. For owner occupiers, any capital gain is tax free. For investors, capital gains are taxed at a 50% discount, and they get the benefit of negative gearing.
But even if there’s some merit in allowing first homebuyers to use super tax breaks to save for a home, it’s unlikely to make much difference. Few people are likely to take advantage of the scheme. Households are reluctant to give up access to their savings, especially when they’re already saving 9.5% of their income via compulsory super.
In fact the proposal works out to be very similar to the former Rudd government’s First Home Saver Accounts, and is likely to be just as ineffective. First Home Saver Accounts provided similar financial incentives to help first homebuyers build a deposit. Treasury expected A$6.5 billion to be held in First Home Saver Accounts by 2012. Instead only A$500 million had been saved by 2014, when Joe Hockey abolished the scheme, citing a lack of take up.
A “shared equity” scheme for super funds
The Turnbull government is reportedly also considering a “shared equity scheme” where workers’ super funds would own a portion of the property investment, and money would presumably be returned to the super fund when the property was sold.
Details are scarce, but the proposal raises several questions.
First, would the super fund use only the super savings of the co-investor to help buy the home, or would they add capital from the broader super fund pool?
Second, how would the super fund generate a return on the investment? A super fund that invests in rental housing gets the benefit of a rental income stream. A super fund co-investing in owner-occupied housing would not. The super fund could take a disproportionate share of any capital gains to compensate, but that hardly seems attractive for the funds in a world where interest rates are already at record lows.
Third, why involve super funds in a shared equity scheme in the first place? Australia’s super sector is already notoriously inefficient – total super fund fees equate to more than 1% of Australia’s GDP each year. A shared-equity scheme would inevitably add to super funds’ administration costs.
If the federal government is serious about super funds investing in housing, it needs to encourage wholesale reform of state land taxes, which levy a higher rate of land tax the more investment property a person owns. This discourages institutional investors such as super funds from owning large numbers of residential properties, because they pay much higher rates of land tax on any given property than a mum-and-dad investor.
Focus on what matters
If Scott Morrison really wants to tackle housing affordability, he can no longer ignore those policies that would make the biggest difference. That means addressing both the demand and the supply side of housing markets.
On the demand side, that means reducing government subsidies for housing investment which have simply added fuel to the fire. Abolishing negative gearing and cutting the capital gains tax discount to 25% would save the budget about A$5.3 billion a year, and reduce house prices a little – we estimate they would be about 2% lower than otherwise.
The government should also include the value of the family home above some threshold – such as A$500,000 – in the Age Pension assets test. This would encourage senior Australians to downsize to more appropriate housing, while helping improve the budget bottom line.
The federal government has little control over planning rules, which are administered by state and local governments. But it can provide incentives to those tiers of government, if it is looking to do something that would really improve home ownership.
While there are plenty of ideas to improve affordability, only a few will make a real difference, and these are politically hard. In the meantime, the latest thought bubbles about using super savings for housing might be less bad than in the past, but they would be just as ineffective.
Authors: John Daley, Chief Executive Officer, Grattan Institute; Brendan Coates, Fellow, Grattan Institute
An excellent and balanced debate about housing last night on ABC Lateline.
Jeremy Fernandez speaks to economist and former federal leader of the Liberal Party John Hewson, director of research at Essential Media Rebecca Huntley, Managing Director of Market Economics Stephen Koukoulas and Victorian CEO of the Urban Development Institute of Australia Danni Addison.
If first-home buyers are allowed to use their superannuation to buy their own home, they are likely to end up with bigger ‘nest eggs’ at retirement than if they rented their whole lives, says Malcolm Gunning, president of the Real Estate Institute of Australia.
He said it is “nonsense” to suggest accessing super to buy a home will erode retirement savings, as both comprise the asset pool at retirement.
Giving young people access to their own money in a superannuation fund to purchase their first home should not be controversial, he said, and is already being used successfully in Canada, New Zealand, and Singapore.
“Accessing Super is not a radical idea,” said Gunning.
Gunning said first-home buyers are often able to save part of the deposit for their first home, but are turning to alternative measures, such as taking out personal loans and using credit cards, to get over the line and cover transaction costs.
“Surveys show that not only are aspiring homebuyers saving for longer but are also using debt to meet their deposit requirement,” he said.
Gunning said the idea of using some superannuation to help fund the deposit on a property purchase was “practical”, and could in fact mean young people have a larger ‘nest egg’ of assets at the time of their retirement.
“Superannuation and home ownership are both components of a retiree’s ‘nest egg’,” he said.
“By buying earlier in life, retirees have every prospect of having a higher equity on retirement and a larger ‘nest egg’ on downsizing.
“It is nonsense to suggest that early access to superannuation for a home deposit would undermine retirement savings,” said Gunning.
“Access to superannuation for the purchase of a first home could help reverse the trend of falling home ownership,” he said, adding that it addresses “the looming social problem of large numbers of long-term renters aged 45 years and over remaining in the rental sector and possibly requiring rental support in later years.”
Gunning said superannuation funds that invested in residential investment property have provided the best returns for their members over the last 20 years. He said individuals should be able to use their super to invest in their own home.
“REIA believes in the benefits of continuing the high ownership level in Australia, particularly as the population ages,” said Gunning.
“The Government should be applauded for considering a holistic approach to housing affordability which includes giving access to superannuation for first homebuyers,” he said.
In The Business tonight there was a segment on the issue of making super accessible to facilitate first time buyers entry into the housing market. Something which today the Government has ruled out, killing off recent speculation. We feature in the segment.
The super industry has launched an unprecedented advertising attack against the big banks likening them to foxes in a hen-house. It comes as a debate rages about an idea to allow first home buyers to use retirement savings for a house deposit.
Interesting modelling from from Rice Warner Consultants, which shows that extracting money from superannuation to facilitate a property purchase will cost in later life and put a greater burden on state pensions down the track.
Universal superannuation was first provided to most Australian employees through industrial awards from 1986 and then via the SG from 1992. The original benefit “award super” was provided in lieu of a national increase in wages. Many members have wanted to get their hands on their deferred pay and there have been constant calls to allow young members to use their accrued super benefits as a housing deposit. Many of those with vested interests in the property industry have been touting the idea ever since.
The superannuation industry has tirelessly pointed out to various governments that the mandatory employer contribution is not sufficient to provide all Australians with a comfortable retirement. That is why, it is planned to increase contributions from the current level of 9.5% of salary to 12% by 2025. Given this, it is nonsensical to dilute retirement benefits further by allowing benefits to be used for other purposes.
The Financial System Inquiry (2014) recognised this and recommended the government adopt the objective of superannuation as providing income in retirement to substitute or supplement the Age Pension. Last November, the Financial Services Minister Kelly O’ Dwyer accepted the FSI recommendation without modification and it will become law as soon as a Senate committee has finished discussing the finer details of how this simple phrase should be worded.
Despite this clear objective, the Assistant Treasurer Michael Sukkar has ignored his own policy and this week suggested that he is reviewing whether young people could use their superannuation benefit as a deposit to buy a home. Perhaps he will regret this when he realises what such an asinine policy would cost future governments in increased Age Pension costs.
This policy would create higher activity and would push up the price of housing as more people compete for the same amount of housing stock. It would benefit real estate agents and mortgage brokers who would get higher commission without needing to do any extra work – one of the consequences of distorting capital markets. State governments would also benefit from the higher stamp duties on inflated house prices. Again, rewarding an inefficient tax.
Self-sufficiency in retirement
We know that current levels of superannuation savings will not make people self-sufficient in retirement. If we look at people who have attained the retirement age, some 45% are currently on a full Age Pension and 31% are on a part pension. That means only 24% are not drawing a government benefit – and some of these are still working.
In 30 years, we estimate that the higher levels of superannuation benefits and a small increase in the pension eligibility age will push down the numbers on a full Age Pension to 33% with a corresponding rise in those on the part pension to 45%. However, the numbers who are self-sufficient will not change much at all. This shows that people will need to put more of their own money into super to become self-sufficient and they certainly cannot afford to take any out before retirement.
We have modelled the impact on a member aged 35 on average earnings taking $100,000 out of their super account to use as a housing deposit. Our young member now loses the power of compound interest and, assuming they only receive SG contributions and don’t top up their super later in life, they will draw an extra $92,000 (present value) in Age Pension payments in their retirement years.
So, the Federal Government allows someone to draw $100,000 and then pays them an extra welfare benefit of $92,000 later in life!
Some have suggested the super fund would simply lend the money to the member and it would be repaid. This would reduce the pain, though the member would still lose out on years of fund earnings – and investment returns make up a much larger component of a retirement benefit than contributions made throughout a career. The fund administrators would also need to keep records of this new activity which will increase fees for all members.
Clearly, there are far cheaper ways of getting people into home ownership, by looking at addressing the supply and demand for housing in our capital cities. Using super as a piecemeal solution is not the way to fix the housing problem.
Changes to stamp duty for first time owner occupiers and a vacant property tax have been confirmed by the Victorian Government today. Separately an equity share scheme was announced to assist first time buyers.
As a package of measures they will certainly impact the market, and whilst the tax breaks and first owner grants may simply lift prices, the tax on vacant properties and equity share strategies could certainly re-balance the market towards owner occupied purchasers. Our research shows there are more than 500,000 households in Victoria are currently struggling to enter the market.
Stamp duty will be abolished for first home buyers for purchases below $600,000, helping thousands of Victorians find their first home, as the Andrews Labor Government tackles housing affordability head on.
Those buying a home valued between $600,000 and $750,000 will also be eligible for a concession, applied on a sliding scale. The exemption and concession will apply to both new and established homes, in a move that is expected to help 25,000 Victorians find their first home.
In a further move to help tilt the scales back towards home owners, the Government will also remove off-the-plan stamp duty concessions on investment properties.
The off-the-plan stamp duty concession will now be available solely for those who intend to live in the property or who are eligible for the first home buyer stamp duty concession.
At the same time, a Vacant Residential Property Tax will address the number of properties being left empty across inner and middle suburbs of Melbourne.
Under the changes, owners who unreasonably leave these properties vacant will instead be encouraged to make them available for either purchase or rent.
The Vacant Residential Property Tax will be levied at 1 per cent, multiplied by the capital improved value of the taxable property. For example, if the property has a capital improved value of $500,000, the amount paid will be $5,000.
There will be a number of exemptions, recognising there are some legitimate reasons for a property being left vacant, including holiday homes, deceased estates and homes owned by Victorians who are temporarily overseas.
Each of these changes are part of the Labor Government’s plan to help more Victorians break into the housing market.
Thousands of Victorians, dreaming of buying their first home, will be able to make their dream a reality, thanks to two new changes announced by the Andrews Labor Government.
A new $50 million pilot scheme, HomesVic, will target first home buyers who are able to meet regular mortgage repayments, but because of rising rental costs, haven’t been able to save a big enough deposit.
Under the scheme, to be introduced in January 2018, HomesVic will co-purchase up to 400 homes, taking an equity share of up to 25 per cent in these properties. It will be available for both new and existing homes.
By allowing homebuyers to purchase less than 100 per cent of the property, they will require a smaller deposit and are able to enter the market sooner. In the long term, it will also mean having a smaller loan to service.
Eligible applicants will include couples earning up to $95,000, and singles earning up to $75,000. Buyers will need to have a 5 per cent deposit. The pilot will be tested across the state, and when the properties are sold, HomesVic will recover its share of the equity.
To further improve buyers’ chances of owning their own home, the Labor Government will also contribute $5 million to a national, community sector, shared equity scheme, Buy Assist.
With similar goals to HomesVic, Buy Assist will help deliver an additional 100 shared equity homes and help low to medium income households get a foothold in the property market.
The Government is also set to give first home buyers priority in government-led urban renewal developments, with at least 10 per cent of all properties allocated to first time buyers.
This approach will be used for the first time at the Arden development.
The plan to develop the 56 hectare site Arden, announced by the Labor Government last year, could be home to around 15,000 people. Under this policy 1,500 of those could be first home buyers.
Finally, in a separate release, the overall portfolio of actions were summarised under “Homes for Victorians”
Every Victorian deserves the safety and security of a home.
But for many, that’s becoming increasingly harder.
A significant number of Victorians, particularly young Victorians, are struggling to break into the housing market.
House prices are rising and upfront costs – a deposit, stamp duty and fees – quickly add up.
It’s getting harder for renters too.
Many struggle to meet high rental prices, or instead choose to live in unsuitable housing. Some don’t have the security they need, or the capacity to personalise their home as they would like.
At the same time, the number of Victorians who need to access public and community housing is growing. Waiting lists are long, and many of our existing homes have fallen into disrepair.
In short, too many Victorians don’t have a real choice about where they live, or the type of home they live in.
And as our population grows, inaction will only make things worse.
Fixing this problem isn’t simple.
It’s why Homes for Victorians provides a co-ordinated approach across government, and across our state. It includes:
abolishing stamp duty for first time buyers on homes up to $600,000 and cuts to stamp duty on homes valued up to $750,000
doubling the First Home Owner Grant to $20,000 in Regional Victoria to make it easier for people to build and stay in their community
creating the opportunity for first home buyers to co-purchase their home with the Victorian Government
making long-term leases a reality
building and redeveloping more social housing – supporting vulnerable Victorians while creating thousands of extra jobs in the construction industry.
It builds on existing work being done, including the soon to be released Plan Melbourne 2017-2050, reform of the Residential Tenancies Act 1997, the Better Apartment guidelines and the Family Violence Housing Blitz.
It also builds on our efforts to better connect Victorians with services and infrastructure. From schools to health care, roads to public transport, regardless of where they live, every Victorian should have access to the things they need.
It’s a big job, but the aim is simple: to give every Victorian every opportunity to find a home.
But, now, are we seeing the same with Negative Gearing changes, which Labor proposed, and which have been opposed by the Government ever since? Has it become caught in the same trap as the NBN? Had Labor kept it’s power dry, would we have seen changes to negative gearing already?
Will the legacy of the unwillingness to tackle such a core element in the landscape cost us a housing crash? As we argued recently, it is looking more likely that we will need a correction to defuse the current heady trends.
