What Does the Budget Mean for Housing Affordability?

This week’s Federal Budget 201718 introduced a raft of measures to address housing affordability. What are the main changes and what impact will they have on different sectors?


Earlier this week, we saw the announcement of nine changes in the Treasury Portfolio as part of this year’s Federal Budget aimed at addressing the housing affordability crisis that has been such a key political issue for many years.  In his Budget speech, Treasurer Scott Morrison said that while there was “no silver bullet to make housing more affordable”, these measures represented “a comprehensive package that can make a difference”. The treasurer added: “We have also chosen to put downward pressure on rising housing costs. If a family or an individual has a roof over their head that they can rely on, then all of life’s other challenges become more manageable,” he said.

Some of the key measures included making it easier to save for a home deposit, encouraging older Australians to downsize, and tougher rules regarding foreign property investment and increased funding for infrastructure and transport projects.

Here is a summary of the housing measures and what they may mean for you:

First Home Buyers

Many First Home Buyers Australians have been faced with unprecedented house price growth over the last decade, compounded with high education debt, flat wage growth and high health cover costs many buyers have been left disenchanted.  The 2017/2017 Budget has introduced the First Home Super Saver Scheme which is designed to give a helping hand to first home buyers saving for a housing deposit. This savings scheme is similar to the unpopular First Home Saver Accounts introduced by the Rudd Government in 2007.

As at 1 July 2017 under the new scheme, individuals saving for their first home will be able to salary sacrifice contributions to superannuation which along with associated earnings can be withdrawn from 1 July 2018 to fund a first home deposit. Up to $15,000 per year or $30,000 in total can be contributed within existing contribution caps. The contributions will be taxed at 15%, while withdrawals will be taxed at marginal tax rates less a 30% offset.

Older Australians

As many Australians will be aware, the GFC (Global Financial Crisis) and the property boom could not have happened at a worse time for baby boomers who were hoping to build, liquidate, downsize and live on a well-earned nest egg. Older property owners (aged over 65) are being encouraged to sell their family homes through the allowance of a non-concessional contribution of up to $300,000 each into their superannuation from the proceeds of the sale.

The aim of this incentive is to to reduce the barrier to downsizing for the baby boomer generation, and free up larger homes and housing stock for younger families upgrading into more suitable real estate.  This is in addition to the existing non-concessional contribution caps and will be exempt from the age test, work test and the $1.6m total superannuation balance test for making non-concessional contributions. Note that if applicable, consideration will need to be given to the impact downsizing has on eligibility for the age pension.

Foreign Investors

Further restrictions will be imposed on foreign investors including a “Ghost tax” of up to $5000 for foreign buyers who leave their property unoccupied or not genuinely available on the rental market for at least six months per year. In addition, foreign property owners will have to pay capital gains tax on their principal residence when sold.
Furthermore, the withholding rate on capital gains tax that foreigners must pay when they sell property will increase to 12.5 per cent from 10 per cent beginning from July 1. Additionally foreign ownership of new developments will be capped at 50%.

Other measures to address supply include: allowing Managed Investment Trusts to be used to develop and own affordable housing; providing investors in affordable housing with greater income certainty by enabling direct deduction of welfare payments from tenants; and increasing the capital gains tax discount to 60 per cent for investments in affordable housing.
Affordable Housing

The federal government will replace the National Affordable Housing Agreement that provides $1.3 billion every year to the states and territories, with a new set of agreements, with the same funding, requiring the states to deliver on housing supply targets and reform planning systems.

“We will work with the States and Territories and local Governments to get more homes built, because prices are higher where demand is greater than supply,” said Treasurer Scott Morrison.

There has also been the establishment of the National Housing Finance and Investment Corporation (NHFIC) to help provide long-term, low-cost finance to support more affordable rental housing.
Infrastructure and Green Field Development

The budget has included details on the funding ($5.3 billion) for the second Sydney airport. After thirty years of uncertainty and disputes over congestion and capacity limits of the Kingsford Smith Airport, the Budget has provided for extensive earthmoving works to start on the 1,800ha site in the second half of next year.  This should create 20,000 jobs over the 8-year construction period in Western Sydney.

In regards to Brisbane and Melbourne, the funding provided for an inland rail link from Melbourne to Brisbane should promote growth and development in these areas. Also noted, by releasing surplus defence land at Maribyrnong In Melbourne, land in this area could make way for a new suburb that could cater for 6,000 new homes just 10km from the CBD.

Simon Cohen believes that more could be done to address housing supply which is the root of the housing affordability crisis in Sydney. The measures in last night’s Budget have the potential to help to a certain extent, however further measures are needed to stimulate the housing supply, otherwise prices will continue to edge up.

Overall, the 2017/2018 Budget has attempted to address the affordability issues which should be a relief to many Australians. Please note that as with any release on Federal Budget night, the measures outlined above are only proposed at this point with a legislative review required before being passed as law.

The buyers agents at Cohen Handler are knowledgeable about current housing trends and can help you find the right property at the right price for you. Contact us now.

Read the full article here on the 2017/18 Federal Budget.

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