The seven most common suggestions for 'fixing housing affordability'
Affordability, and the lack of it, is a big topic for those working in the property industry and those buying into the property industry.
Some do not believe the affordability issue exists, such as observer Terry Ryder who was recently writing on what he sees as a mythical issue, and has been for some years.
Others believe we are at a crisis level.
Property Observer has compiled a list of the seven most regularly suggested ways to improve housing affordability and assist first time buyers enter into the market.
Add yours to the bottom of the post, and debate how effective you think these suggestions would be.
1. More first time buyer grants
Providing first time buyer grants to assist new home buyers get a foot on the property ladder at first seems to make a lot of sense. Giving them a cash injection looks as though it will give them a leg up.
Unfortunately, this isn't necessarily the case. Terry Ryder notes that, particularly at present with grants aimed towards new property, they do little to bridge the gap between the cost of a new home and the cost of an established home.
Meanwhile, Steve Keen refers to these hand outs and grants as a "poisoned chalice" that create bubbles. It certainly isn't an uncommon perspective. Many believe giving out first home owners grants merely serves to increase property prices by the value of the grant.
2. Improving supply with more developments
This is often pushed by development companies or lobby groups, however does contain a some grain of truth – improve supply to keep up with demand. Simple? The reality is a little more complicated.
This would involve, in some states and territories, an overhaul of planning and the development approval process. Rezoning may need to occur. Cheap housing supply benchmarks may need to be set, and there would have to be consensus on what "type" of housing should be built.
Even if we did reach this point, it's unclear whether the increased supply would actually have an effect.
A recent article, which looked closely at supply and demand, argued that houses are not the same as bananas or other commodities when it comes to supply. ]
The argument, from academics Nicole Gurran and Peter Phibbs, is that prices for housing are set by the total market, not just the new builds. When prices go up consumption does not decrease, as it might with bananas, and that rises in prices are often accompanied by a decrease in interest rates.
Even if improving supply is the solution, there are locals to also deal with. The McKell Institute's Peter Bentley previously wrote that dealing with a NIMBY attitude will be an issue.
3. Allow first time buyers to access their superannuation
A hugely contentious suggestion, and one that has been played out in other countries: Is superannuation the silver bullet for new buyers?
The Housing Industry Association (HIA) is keen, with their executive director Graham Wolfe noting that it would assist with their deposit.
“Accessing superannuation for a home deposit would provide temporary access to their personal savings. Provided it was repaid to their superannuation accounts over a period of time, similar to university HECS repayments, their retirement savings would be assured,” he said.
“HIA urges all stakeholders to support measures aimed at improving access to home ownership for first home buyers, including assistance in breaching the deposit gap.”
However, a number of experts, including wHeregroup's Todd Hunter, remain opposed to the idea, saying that it would detract from the security and purpose of superannuation.
There is also the issue around what would occur if the property purchased drops in value, and the simple truth that not all young first time buyers have saved much in the way of superannuation.
4. Negative gearing reform
Tax reform, especially pertaining to negative gearing, is discussed every time a new budget comes up. Whether it's grandfathering the tax benefit out of existence, removing it completely, or some other change, the proposal always winds people up.
Some suggest that removing negative gearing benefits takes away the incentive for investors to buy into the market. Investors are often described as competing with first time buyers and subsequently driving house prices up.
Abolishing negative gearing may also remove financial advantages for investors who can afford to pay more, knowing it will cost them less to hold.
Others suggest that taking away benefits around negative gearing removes the incentive for investors to buy rental properties, which some argue assist the provision of rental housing stock. For those, an exodus of investors from the market is a bad thing.
You can read both sides of the argument here.
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5. Alter stamp duty
Stamp duty is also widely considered a tax that stops new buyers, in particular, from getting into the market. Suggestions around replacing it with a broad-based tax have been thrown around, while others just want first home buyers to be given back their stamp duty exemption for purchasing any property.
Removing it completely is often proposed. In fact, BIS Shrapnel's Angie Zigomanis argued earlier this year that stamp duty is almost entirely responsible for lagging first home buyer numbers.
Others suggest that giving older downsizers a relief from stamp duty would help open up larger established properties for upsizers and first home buying families. This is already in place in some areas.
Stamp duty concessions and other property tax cuts, particularly for first home buyers, seem to garner the most expert support.
6. Macro prudential measures
While macro prudential control is not necessarily on the cards from the Reserve Bank of Australia (RBA), it has been the topic of some debate over whether it could help with not just lending standards but also affordability via the reduction of loan to value ratios (LVR), particularly if aimed towards specific sectors of the market.
Observer Catherine Cashmore recently reflected on a BIS Shrapnel report which found that while reductions in the maximum LVR can restrain demand, debt service to income ratio measures were assessed to be more substantial.
However, the report noted that “only tax changes affecting the cost of buying a house, which bear directly on the user cost, have any measurable effect on prices” and that “none of the policies designed to affect either the supply of or the demand for credit has a discernible impact on house prices.”
"The study puts this down to the ‘can buys’ still outnumbering the growing pool of credit constrained ‘can’t buys’ – stressing that the importance of housing supply was not explicitly considered. Therefore if we want to lower house prices or put in place policies to aid affordability, we need to look outside the limited powers of the RBA alone," writes Cashmore.
What macro prudential measures will do, writes Lindsay David, is push new buyers to the sidelines for an immediate period of time and assist them from getting themselves into too much debt.
"[However, it will] negate their fair chance to own a home like their previous generations have– for a much lower cost," he writes, asking "Where does this leave us?"
7. Changes to foreign investment in Aussie property
The most popular debate around affordability over the past months has been the issue of foreign investors fuelling property prices across the country.
Whether it's hitting foreign buyers up with an extra fee, increased enforcing of the current rules or an overall abolition of the investment, all manner of things have been suggested.
Unfortunately, it seems experts are split about whether foreign investment is substantially pushing up property prices, despite the record numbers seen in recent months.
Cameron McEvoy suggests that the affordability issue from foreign investors may be contained to specific suburbs and specific types of properties.
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