A Look at First Home Buyers Policy - Australia
With the NZ election coming up later this year and housing affordability particularly among first home buyers being seen as a major election issue, we are going to take a look at what other countries have been doing in this area. We will look at their policies and how they could provide food for thought in NZ.
Australia experiences similar housing market pressures to New Zealand along with vast regional disparities in values and housing affordability.
For starters it's worth looking at the background. Australia has more complex tax law than NZ and has a number of property specific taxes such as Capital Gains Tax (CGT) and stamp duty which add to the cost of buying a house or land. To complicate matters Australian states set many of the laws related to the property market so grants, eligibility rules and even taxes can vary across the country state by state.
Australia has used its tax policy not only to generate revenue but to attempt to control property price inflation. While it has lined the coffers of state and national government unfortunately their measures have failed to hold back property prices and the government is still facing huge deficits which puts pressure on what support they can afford to offer first home buyers.
First Homeowners GrantAs far back as 2000 Australia started trying to give first home owners a leg up with the introduction of the First Home Owner Grant. This grant has seen many changes over the years and differs significantly state by state.
Key points about this grant are.
- Not means tested (no income thresholds)
- Reasonably broad other eligibility criteria which has made it widely used.
- More reasonable thresholds than NZ and in some states there is no limit on the value of the home.
- Most states moving towards only allowing it for building of new homes
- Significant difference in the value of the grant state by state ($26,000 in Northern Territory, $15,000 in South Australia for example)
Meanwhile in NZThe New Zealand government has followed suit with its HomeStart grant however its thresholds are tighter and it is income tested which has made it harder to access for many.
The government has claimed these measures are to limit the inflationary impact of the grant and also to ensure those who most need it have access to it. Given the time in budget cycle and also the rate at which property prices were rising these could have been seen as very wise or very harsh rules depending on your point of view. For Queenstown they make the grant virtually redundant.
Other support in AustraliaAgain it's hard to quantify all the various options available to homeowners as the vary significantly by state to state but they include a mix of the following depending on where you live.
- Stamp duty concessions
- State government or not for profit backed loans, for low income earners or indigenous people
- Shared ownership schemes requiring very low deposit and limited credit background
Budget 2017 in AustraliaUnder massive pressure to further address housing affordability but also severely limited by crippling budget deficits the Australian government announced a further raft of measures aimed to helping first home buyers and taking housing affordability.
- Small changes to the tax rules for investors/landlords. Negative gearing stays, albeit with some tightening on what can be claimed as legitimate costs.
- The main residence exemption from Capital Gains Tax (CGT) will disappear entirely for non- or temporary residents – effective immediately
- First home buyers will get a tax cut on their first home deposit by being able to salary sacrifice into their super accounts.Contributions will be taxed at 15 per cent and withdrawals taxed at their marginal rate, less 30 percentage points.
- Foreign ownership in new developments will be restricted to 50 per cent.
- Future foreign owners will also incur a $5000 "ghost tax" if they leave a property vacant for six or more months in a year.
- Local investors who offer cheaper rents to tenants on low to moderate incomes could qualify for extra CGT concessions, from 50 to 60 per cent (a registered community housing provider must manage the property for at least three years).
- Tax benefits for older Australians downsizing.
- Releasing defence land for housing developments in major cities.
Meanwhile in NZLabour plans to go further than Malcolm Turnbull in Australia by scrapping negative gearing in NZ to decrease the attractiveness of property investment and free up the market for first home buyers, which the ACT party says will drive up rents as landlords will pass on the reduced tax savings to tenants.
The Greens in the past have discussed fixing rapidly rents by capping rent them in some way, possibly tied to a tenants income and also hitting property owners with a CGT which Labour previously supported but now doesn’t. ACT and National believe either of these measures will reduce the supply of housing with landlords unable to make attractive returns.
In regards to the shortage of land and housing ACT, Labour and National will all open up more land in different ways and Labour will then build 100,000 houses themselves. National has just announced it will also build more homes by replacing older state houses with higher density more suitable homes. Labour might literally be building them by themselves as their proposed crackdown on immigration will take away access to the very labour force they need to build the houses.
There has been little in the way of further assistance beyond the current HomeStart package and access to early KiwiSaver withdrawals to help with first home deposits, instead most of the focus has been on generating supply and cutting demand from investors, multiple homeowners and foreigners.
So in short you can see it's very complicated in Australia in regards to what support is available but there are a number of measures available direct to first home buyers. The government is trying hard to tackle house price inflation but it remains to be seen what level of success they will have as so far the only successful way Australia has found to lower its house prices is to have a mining downturn in Western Australia and that has only impacted one side of the country.
In NZ we have many policies being discussed and we will review them all as we also look at how other countries are dealing with the same issues. What do you think would work best in New Zealand from the Australian policies?
I still believe the RBNZ should consider allowing 1st home buyers to be exempt from their lending cap legislation ensuring funding is always available and also limit the funding reserves required by a bank for a 1st home buyer enabling the lenders to offer better rates when they need it the most rather than paying 1.30%+ higher than someone with 20% deposit.
The Welcome Home Loan product, which is pretty much useless locally due to the caps, but a great product in principal as the government guarantee the mortgage and therefore due diligence and supporting information provided by the client is more extensive.
An option to improve this rather than guarantee the full loan they could loan 10% of the purchase price to be repaid on a shorter term so the banks have their 20% equity and 1st home buyer has competitive rates.
This would surely offer a better return to the government than a student loan, which has a high rate of default and very long repayment period with no real security?