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Will the changes put forward by the Victorian government impact house affordability? And will other states in particular NSW follow suit?

Marty McDonald - Wednesday, March 08, 2017

Housing affordability has been a contentious issue for both federal and state governments in the last two years. The public has put major pressure on government to find a solution for inflated house prices in Sydney and Melbourne which has caused a major decrease in first home ownership. According to the Australian bureau of statistics the number of first home buyers has plummeted in recent years from as high as 39% in 2009 to a lowly 13% in 2016. Note there is some serious contention around the official figures but that is another story and regardless clearly the numbers of first time buyers is down significantly.

The Victorian government claims they’re “talking housing affordability head on” but could their latest plan be more of a rhetoric for voters than a plausible solution that will bring real outcomes? NSW is shortly to follow with some new housing policy announcements. The new premier made it clear housing affordability was one her main goals when taking over from her predecessor.

As part of the Victorians housing plan, stamp duty will be scrapped for first home buyers purchasing properties for less than $600,000. We will also see stamp duty discounts for houses between $600,000 and $750,000. Perhaps a bit cynically the changes don’t come into effect until July 1 later this year.

The idea is that first home buyers with this concession will have more deposit to go towards a property, meaning they can get into the housing market sooner.  All good and well but Daniel Andrews says “for thousands of buyers, it’ll be the difference that means they can finally find their home”. However this move has been criticized as putting upward pressure on house prices and increasing demand. With more money in their pockets for a deposit, first home buyers will be able to outbid each other for properties. Further inflating house prices with the increased demand.  House prices will be likely to rise by more than the amount first home buyers are saving on stamp duty cancelling out any changes to house affordability. Ultimately this move will benefit land owners and developers rather than its targeted segment.

The Victorian government will also be piloting a co-ownership model, where-by the government will provide up to 25% of the purchase price of the home to be returned to them on sale of the house. According to Daniel Andrews this is a win-win for government and home buyers as the government has a position in the value of the house and home buyers can get into the market earlier and benefit from years of capital growth. This shared equity model supposedly see’s the risk evenly spread between government and property buyers however where is the detail around what happens in a market crash, first home buyer defaults etc. I can see some serious risk for government contemplating this and again all it does is bring forward demand.

Another facet of the plan will be introducing a tax for investors who leave their properties vacant. This will be an incentive for investors to rent out their properties. This tax will be 1% yearly meaning investors with a home worth $600,000 will pay $6,000. This tax will target inner city and middle suburb homes with an exemption for holiday homes, diseased estates and residents who are temporarily overseas.  This is the best of the proposals in my opinion.

The government hasn’t shown publicly any modeling the expected impact of these changes inviting suspicion it hasn’t been done. What interesting is the change of roles between federal and state government. The federal government controls big demand levers like negative gearing, capital gains and immigration policy but has little direct control over housing supply. At a state level, there’s limited control over the demand side (besides stamp duty tinkering) but they can increase supply by releasing land and forcing rezoning's etc. The local councils also have a role to play to keep NIMBYISM in check.
In summary I think what we really need to fix housing affordability in our two biggest cities is genuine co-operation from all 3 levels of government to attack the supply side issue of the problem. We also need the big banks keep the development finance tap flowing, something which they are currently not doing by all accounts (what a luxury they have when they can artificially limit supply of new housing thus protecting their gigantic mortgage books at the first sign of the market supply side responses). Perhaps that is truly where government can help the most by leaning on the banks to keep lending for development or indeed by creating partnerships direct with developers or by becoming developers themselves to cut the banks out of the equation.... all things state governments used to do back in the 1970's..
About the Author: Marty McDonald is principal of mortgage broker “Mortgage Experts”. Marty specialises in assisting active property investors with loan structuring advice and implementation as well as helping credit worthy borrowers with slightly outside the box income and employment situations. Find Marty on  and LinkedIn.