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From July 1, 2017, first-home buyers can make voluntary contributions of up to $15,000 a year and $30,000 in total to superannuation, to help purchase their first home.
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What the federal budget proposed for housing affordability

The federal budget is always eagerly awaited for news of how homeowners – and potential homeowners – will be affected. Housing affordability remains a key concern and this budget introduced a number of measures to address it. So what has been proposed?

 

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Investors will no longer be able to deduct an airfare to the Gold Coast – or anywhere for that matter – to ‘inspect’ their rental property.

Helping first-home buyers

From July 1, 2017, first-home buyers can make voluntary contributions of up to $15,000 a year and $30,000 in total (per person if part of a couple) to superannuation, to help purchase their first home.

The contributions will be taxed at 15 per cent, while withdrawals will be taxed at marginal tax rates less a 30 per cent offset from July 1, 2018. The scheme will be administered by the ATO, which will also determine the amount of contributions that can be released.

Reactions are mixed on this measure. Some have given it a cautious welcome, while others say they’ve seen it before in the guise of previous grants and all that happens is the subsidy is directed into the price of existing housing with only sellers benefiting.

The Australian Institute of Superannuation Trustees (AIST) chief executive, Eva Scheerlinck says: “Importantly, this measure is limited to voluntary super contributions of up to $30,000 and does not allow people to access their existing compulsory super contributions for a housing deposit – something AIST has long-opposed.”

Richard Holden, Professor of Economics at UNSW, wrote in The Conversation that the first-home super saver scheme was a “minus” in his view.

“It’s bad economics, somewhat costly, and a cruel hoax on prospective home buyers who are struggling with an out-of-control housing market,” he wrote. “But the biggest minus of all was the absence of any measure whatsoever to address negative gearing and CGT exemptions for rental properties [apart from] you now won’t able to deduct an airfare to the Gold Coast to ‘inspect’ your rental property.”

 

Super changes for older homeowners

There is also an incentive for people over 65 to downsize by allowing $300,000 of the proceeds of a sale of their main residence to go into their super. This will be above the $1.6 million cap that comes into effect from July 1 this year.

This proposal aims to free up the availability of family sized dwellings. Whether it will lead to older homeowners selling their homes to downsize is unclear but it is an incentive.

 

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Foreign investors will be hit with a levy of at least $5000 if they don’t occupy or lease their property for at least six months a year.

Tackling foreign ownership

As expected, foreign investors were targeted. Foreign and temporary tax residents will no longer benefit from a capital gains tax exemption for primary residences. The grandfathering of this measure lasts until June 30, 2019.

There will also be a lower CGT withholding threshold of $750,000 – down from $2 million – on foreign tax residents, and the rate will be increased from 10 per cent to 12.5 per cent.

Foreign investors will be hit with a levy of at least $5000 if they don’t occupy or lease their property for at least six months a year and the government will restore the requirement that developers don’t sell more than 50 per cent of new developments to foreign investors.

One concern around restricting sales of property developments is that many projects may not proceed due to the local apartment market not being deep enough to soak up any surplus stock.

The foreign investment changes were a concern for HIA deputy managing director Graham Wolfe.

“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,” Wolfe says. “Barriers to investment are not productive for the building industry or the economy more broadly; investment needs to be encouraged.”

 

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The $1 billion National Housing Infrastructure Facility will fund micro city deals that impede housing development in areas of undersupply.

Dealing with supply issues

Housing supply is a key driver of housing affordability and the government is seeking to address the lack of it through a number of measures.

One involves the establishment of the National Housing Finance and Investment Corporation. Here, the government will provide $63.1 million over four years to operate what it calls a “bond aggregator” that provides 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,” Holden says.

Another measure is the establishment of a $1 billion National Housing Infrastructure Facility to fund micro city deals that remove infrastructure chokepoints that impede housing development in areas of undersupply.

The government also announced it will replace the National Affordable Housing deal with a new agreement called the National Housing and Homelessness Agreement (NHHA) worth $1.3 billion. States and territories will be required to deliver on housing targets and reform their facility planning systems to make it easier to increase housing supply.

In other measures, the government will establish an online Commonwealth land registry that will list sites, which could be made available for residential development. And Managed Investments Trusts will receive concessional tax treatment when affordable housing is made available to rent for low and middle-income tenants for 10 years. This proposal also includes additional capital gains tax discounts for those investing in qualifying affordable housing.

 

No silver bullets

Overall the government proposed a number of housing initiatives to address the affordability issue, thus highlighting the importance of the problem. As the Treasurer Scott Morrison said before he delivered the budget, “There are no silver bullets to improve housing affordability”. To carry the gun analogy further, the proposals appear to reflect a scattergun approach to the issue and whether they hit the target remains to be seen.

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Gayle Bryant

Gayle has been a financial and business journalist and sub-editor for almost 30 years. She has written for a wide range of newspapers, magazines, custom and trade press and websites. Gayle’s articles regularly appear in the Sydney Morning Herald’s small business section and the Australian Financial Review’s special reports section.

The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Homeloans Ltd.