Housing Affordability and the Budget
In the lead-up, it was parroted as a budget for housing affordability, but the Australian Government Budget 2017 has now been released, and it seems that potential first home buyers have been fed another line.
Last night’s budget, whilst doing a lot to address housing, does very little to address housing affordability.
For example, there is the much hyped super-for-housing-deposits scheme, which allows first home buyers to use concessional super contributions to get a foot the housing market. This will only serve to increase the amount of money circulating in the property market, and should therefore have no downward effect on house prices.
The other measure aims to incentivise downsizing for those over 65, by allowing them to contribute $300,000 of the proceeds of a sale of their main residence to their superannuation, above the $1.6 million cap announced in the last budget. It is possible that this measure will help to increase the supply of housing to the market, which may help affordability. However, even if these seniors do downsize, they will likely purchase a new property in which to reside, meaning that there should be little net increase for houses on the market, and little change in prices as a result.
Our housing is expensive. In fact, on a price to income basis, Sydney is the second most expensive city for housing on earth. Melbourne is fourth. Furthering the issue is the fact that wages in Australia have recently been stagnating whilst house prices have been rising.
So what gives? How can prices continue to rise when they’re already expensive, and when people are earning less?
One potential answer is foreign real estate investment. Over the past 12-months, foreign real estate investment has risen by 36.8 percent, according to the latest data from the Foreign Investment Review Board.
Chinese investors were the most prevalent of foreign investors, accounting for a fifth of the total foreign investment, with two-thirds of Chinese investment funds heading into real estate markets.
Some in the real estate industry believe that new rules in parts China to limit property speculation have pushed Chinese property investment offshore, whilst the introduction of a foreigner buyer surcharge in Victoria in 2015 appears to have had little effect in dampening demand; Victoria accounted for 44 percent of foreign investment approvals in real estate.
Whilst many Australians believe that the housing affordability issue needs some attention, I doubt they will be overwhelmed by the measures in the 2017 budget. Nevertheless, it is encouraging that the issue is being considered and addressed.