The NSW Government has revealed details of a housing affordability package it says could save first homebuyers up to $35,000, but a number of measures have raised eyebrows.
The package, which follows premier Gladys Berejiklian saying housing affordability would be a priority issue, includes:
- Cutting stamp duty for first homebuyers on homes up to $650,000 and discounts up to $800,000, effective 1 July 2017
- Abolishing stamp duty charged on lenders’ mortgage insurance
- Doubling the foreign investor surcharge from four per cent to 8eight per cent on stamp duty and 0.75 per cent to two per cent on land tax
- Removing stamp duty concessions for investors purchasing off the plan
- Committing $3 billion in infrastructure funding to accelerate the delivery of new housing
- Expanding complying development to some medium density housing typologies
- Greater use of independent panels for councils in Sydney and in some regional areas
“I want to ensure that owning a home is not out of reach for people in NSW,” Ms Berejiklian said.
“These measures focus on supporting first homebuyers with new and better targeted grants and concessions, turbocharging housing supply to put downward pressure on prices and delivering more infrastructure to support the faster construction of new homes.”
Stamp duty cuts counterproductive
The move to cut stamp duty for First Home Buyers follows similar moves in Victoria, which is scrapping stamp duty for first home buyers on homes under $600,000, and on a concessional basis for homes between $600,000 and $750,000.
However, that move was criticised by a number of economists, as added demand could lead to increased house prices.
Economist Saul Eslake said in a market where demand exceeded supply, the stamp duty concession would just end up as a “transfer of wealth” to vendors.
“It will simply encourage buyers to pay to vendors what they don’t have to pay to state governments by way of stamp duty – that is, they will simply result in higher property prices, just like cash grants to first home buyers do.”
Digital Finance Analytics principal Martin North agreed.
“All the research shows this type of ‘assistance’ gets translated into higher prices – so a net sum game,” he said.
So what would be going into government coffers now goes into the seller’s pocket.
Mixed views on foreign investment tax
The Urban Taskforce was one group that welcomed the cuts to stamp duty, though said covering the revenue loss with increased foreign investor taxes could slow down investment and dampen supply.
“Many large apartment projects rely on a percentage of foreign investment to get sufficient capital to get the project up and running so this impact must be carefully monitored,” Urban Taskforce chief executive Chris Johnson said.
According to Mr Eslake in our recent piece, taxes on foreign investment had reduced house prices significantly in Vancouver, and while he wasn’t opposed in principle to raising them, he warned they were a distraction from more important opportunities, and there could be consequences.
“I don’t think it’s desirable to be targeting a fall in house prices of that order of magnitude [seen in Vancouver]. If that were to be repeated in Australia, I suspect that there would be some significant damage done to both the economy and the financial system.”
Shelter NSW executive officer Mary Perkins questioned the focus on ramping up supply, which also includes independent panels for councils to process development applications, expanded priority precincts and growth areas, and simplifying complying development rules for greenfield areas.
“Once again the government has turned to trying to super charge supply to fix unaffordable house prices in NSW,” she said. “It’s increasingly clear that supply alone is not the solution to affordability. Despite recent strong supply growth, prices have not come down.”
The missing middle
The government’s announcement that it would extend complying development to medium density dwellings under the medium density housing code could help to increase densities in inner and middle ring suburbs.
Increasing supply in these areas was unanimously named as the most effective housing affordability strategy at our recent Flash Forum on Housing Affordability.
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Affordable housing funding extended
The government also announced a second round of the Social and Affordable Housing Fund.
“The NSW Government established the innovative $1.1 billion Social and Affordable Housing Fund to deliver on our election commitment,” Ms Berejiklian said. “This second phase will continue to provide quality dwellings close to social infrastructure as well as essential tailored support services.”
The news was welcomed by NSW Council of Social Services chief executive Tracy Howe, who said: “It provides assurance that the government has a long-term commitment to this innovative model that seeks to increase social and affordable housing outcomes for the most vulnerable in our community.”
Ms Perkins also welcomed the funding, but said it was only a “modest” step in meeting the shortfall of 130,000 affordable housing places.
“The big ticket item – the $3 billion investment in infrastructure to accelerate new supply – could have been much better spent to help directly fund affordable rental housing,” she said. “The government could have taken the opportunity to commit to accept the recent IPART draft recommendation to directly meet the $1 billion gap between existing social housing income the cost of delivering social housing, and enable ongoing growth.”
The Urban Taskforce also agreed there was little in the government’s announcements on affordable housing.
“There is a statement about using government-owned land to increase housing supply but not for affordable housing,” Mr Johnson said. “The Urban Taskforce believes that around 30 per cent of housing on state government land should be affordable and this will reduce the land price to the private sector.”
Labor this week announced it would ensure 25 per cent of housing built on government-owned land would be affordable.