The Federal Government has unveiled its new budget, and it includes a number of initiatives designed to attack housing affordability. Here’s what they’re up to:
First-home saver account
The first $5000 saved in a First Home Saver Account each year will attract a 17 per cent contribution from the Government. Earnings on the account will be taxed at 15 per cent and withdrawals from the account will be tax free if used to buy or build a first home.
For example, a couple each earning $61,000 save 10 per cent of their salary to their individual accounts. They each receive a 17 per cent contribution from the Government on the first $5000. After five years the couple has saved a total of around $88,500.This compares to the $75,900 they would have saved using a term deposit earning 7 per cent interest a year.
So a couple on a combined income of $122,000 (which is pretty high) would be almost $13,000 better off under the Government’s saver plan. If the goal of this plan is to assist those who are struggling to afford to buy a home of their own, is this really going to make a difference? I doubt it. Now obviously every little bit helps, but $13,000 over 5 years – less than $3000 a year – isn’t much. If you can find a home in your area that you can afford for $430,000, then you can probably find something for $417,000.
National Rental Affordability Scheme
The Government is committing to spend $623 million over four years on a rental affordability scheme that will stimulate the construction of 50,000 new rental properties by providing investors with $8000 a year for 10 years for each property that they rent out for 80 per cent of the market rent.
This has some positives (new properties will be built), but it only assists the construction of new homes, and it will only reduce the rent for the first 10 years, after which they’ll revert to full market rates. If this plan could be stretched to include current dwellings, then we might be on to a winner.
Housing Affordability Fund
The Government will provide $500 million to local and state governments to cut red tape for development projects and reduce the cost of new housing.
According to the Urban Development Institute of Australia’s submission to the Senate Select Committee on housing affordability in Australia:
“The Institute recognises the need for a level of taxes and charges to be imposed by local and state governments on new developments. However, the Institute maintains that these fees have now reached excessive levels and are contributing to loss of affordability.”
So the UDIA has known for a long time that it is often the government taxes and red tape that slows down the availability of new developments to the market, and impacts upon housing affordability. So the Federal Government’s new plan should help to open new areas of housing, provided the local and state governments can fulfill their part of the plan.
I’d give this Federal Budget a 5 out of 10. It’s a good first step, but they need to do a whole lot more to really have an impact.