Why New Grants Won’t Help Housing Affordability?

In my last blog I wrote about some of the issues facing Australians around the growing issue of housing affordability – if you missed it you might like to have a look – here. The article is one of the longer ones I have written, however the challenge we face in Australia is one of the greatest in the world of property ownership. It will offer you some real thinking around the issue.

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The big news this week is the Victorian Government announced that First Home Buyers (FHB’s) would get two massive free kicks to help them get a leg up in to the great Australian Dream. The first kick was that the first home buyer’s grant would be increased from $10,000 to $20,000 for those who chose to live in a regional centre and built a new home. However the winning goal was the revelation that first home buyers would be totally exempt from stamp duty on purchases of new or existing homes up to the value of $600,000.

This will save first time buyers up to $15,535 (for a $600,000 purchase). I must admit, when I first heard the news I did my patented “silly dance” and literally jumped for joy.

Why?

You must know I’m not a first time buyer?

That’s right, but in my role as a property developer, what I do is create affordable homes in just that price bracket that will now have very much increased appeal to first home buyers and make it easier for them to buy.

Unfortunately for them, and luckily for me, values of those same properties are likely to rise by at least the amount of the saving and probably more.

This is exactly what happened in Perth in 2007 when the then Rudd Government announced a big jump in the Federal First Home Owners Grant. How do I know? Well you see, the day after the announcement, I was out at my land estates signing up deals on the bonnet of my car, selling properties that we hadn’t been able to get rid of for several months prior. It was like a light switch turned right on to high beam.

Having just secured a Melbourne site that will produce approximately 45 apartments and 24 townhouses that will all sell for $450,000 or less, next to a train station and only 25 minutes from the city (more about this in a special announcement on Thursday – watch your email!) you can bet I was doing my best “silly dance” and sporting a huge grin.

You see those most likely to gain the most in this will be the vendors of property sold to the first time buyers, not so much the other way around. Yes, the FHB’s won’t need as much cash to get in to their home, however they will need to borrow a little more to cover the likely price increases. They will pay one way or another.

The flip (and much darker) side of this largesse from the Andrew’s Labor State government, is that investors – yes, average persons like you and I, will now lose their stamp duty concessions which they previously received for buying new property off-the-plan. They will now pay the full whack of about $31,000 for the same $600,000 property. So “Robin Hood” Andrews will rip the money off the rich and oh so evil investors and redistribute it to the poor FHB’s. Net change to the state budget, which will be about $2BN in surplus each year for the next four years, will be next to nothing.

They give with one hand, and take with two.

And don’t forget the most terrible foreign buyers who now will be forced to pay approximately $73,000 in stamp duty for the same $600,000 property under the new increased duty for non-residents – do you think they will bother to keep buying and investing here? And bless the Andrew’s Government for being the first in Australia to introduce another tax for homes that are not lived in – for the same $600,000 property, the owner will need to front up with an annual $6,000 or so for the privilege of having an empty home. And that is in addition to the existing land tax. The idea is that this will force evil landlords to make their homes available for rent, instead of being vacant.

I admit, the notion has merit, however there are so many ways to ensure a greater supply of rental property for the 30% of Australians who either by choice or circumstance rent the homes in which they live. For example, the ability for a home owner to gain tax deductions when renting out their properties – yes negative gearing – this is one way to increase the amount of housing stock for rent. Yet various interest groups see this as another free kick for the rich. Nothing could be further from the truth.

I recall that when the GST was introduced a part of that deal was that stamp duty for property purchases would be abolished. Never happened. They have in fact increased. Many other nations around the world do not charge stamp duty at all. Our closest neighbours across the ditch (NZ) have no stamp duty or capital gains tax for that matter. Why do we – a nation far richer?

And all our leaders can do is think up ways to introduce new taxes – ostensibly to “cool the market”, but really – it’s to raise revenue from increased taxes.

The sooner government eases back on all types of property taxes, the better off home buyers will be. I have seen reports that show that Federal, State and Local government taxes can make up to 40% of the price of new housing. Can you imagine what would happen if each arm of Government reduced what they take by 50%? That would theoretically mean that housing could become 20% cheaper overnight.

But it will never happen.

I wish the FHB’s of Victoria all the best in their quest for home ownership – and I look forward to seeing them lining up for one of my developments soon. Though I won’t see investors or people from overseas who want to invest in our economy. They will take their money and go elsewhere.

Sadly, unless a whole lot more is done to increase the supply of land and new homes, we will see the rate of home ownership levels drop. Sharply.

And I can assure, that won’t be good for our nation.

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