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What can the government do to improve housing affordability?

real estate

By John Flavell, CEO Mortgage Choice 

Housing affordability is a real issue affecting thousands of Australians, yet little is being done to help the problem.

Data from the Australian Bureau of Statistics found wages grew just 1.9% over the 12 months to March 2017.

Meanwhile, data from CoreLogic shows property values climbed 12.9% across the combined capital cities over the same time frame.

These statistics make one thing very clear: wage growth is not keeping pace with property price growth.

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As a result, housing is becoming increasingly unaffordable, making property ownership increasingly difficult to achieve.

The Government has actively spoken about the ongoing issue of housing affordability in a lot of public forums.

But while there is a lot of talk about housing affordability and its impact on the broader community, there is next to no action.

In the latest Federal Budget, the Government unveiled its First Home Buyer Super Saver Scheme.

Under the conditions of the program, first home buyers can inject additional funds up to the value of $15,000 a year into their nominated superannuation account. All contributions and earnings are then taxed at 15%, rather than the first home buyer’s marginal tax rate.

While we support anything that can serve to help the plight of first home buyers, this particular program seems unlikely to have a huge impact.

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At best, a couple who salary sacrifices a portion of their income into their super might be able to scrape together enough money to pay for the stamp duty charged in markets like Sydney and Melbourne.

Indeed, there is nothing to suggest that this new scheme will deliver a different result to the spectacularly unsuccessful First Home Saver Account initiative that was launched by the Rudd Government in 2008 and withdrawn from the market in 2014.

While it is fair to suggest that the Federal Government has done little the address the issue of unaffordable housing for first home buyers, I am pleased to see the state government’s stepping up to the plate.

At the beginning of July, both the Victorian state government and New South Wales state government abolished stamp duty for first home buyers purchasing properties up to a certain limit.

In New South Wales, first home buyers purchasing a property worth $650,000 or less no longer have to pay stamp duty, while those purchasing a property with a value between $650,000 and $800,000 are eligible for a stamp duty concession.

In Victoria, the story is much the same, with stamp duty abolished for those first home buyers purchasing a property up to the value of $600,000.

While this is real progress and should be applauded, I am not sure it goes far enough. It will remain to be seen how much of an uptick we see in first home buyer demand over this next period.

In my opinion, the recent changes brought about by the state and federal governments (extended first home owner grants; stamp duty concessions; and salary sacrificing programs) will do very little to treat the root cause of housing affordability.

Property price growth is fundamentally driven by supply and demand. When you get an ever increasing proportion of the population seeking to live in the urban centres for direct access to employment opportunities, education and other amenities, it is only fair to assume that we will see these centres come under greater supply pressure.

Structural changes across the country are needed. We need to see further opportunities for employment in regional areas. In addition, we need better infrastructure to enable a faster connection between our suburban/regional areas and our urban centres. Finally, we need to see continued development within the urban areas.

Only then will the issue of housing affordability be properly addressed.