Victoria’s housing affordability salvo scores some hits and misses
Sandra Edmunds | 7 March 2017
The Victorian government’s new shared equity pilot scheme and vacant residential property tax are positive moves, but the bulk of the recently announced affordable housing measures won’t have a big impact, critics say.
Under the new $50 million pilot scheme HomesVic, 400 first home buyers will have the opportunity to co-purchase a home with the state government, which will take an equity share of up to 25 per cent in each property.
The program is designed to assist those who have the ability to meet regular mortgage repayments, but haven’t been able to save a large enough deposit due to rising rent.
Other announced housing affordability measures include:
- introducing a vacant residential property tax to address the number of properties being left empty across inner and middle suburbs of Melbourne
- abolishing stamp duty for first home buyers for properties costing less than $600,000
- providing a stamp duty concession (applied on a sliding scale) to first home buyers purchasing properties valued between $600,000 and $750,000
- doubling the first home owner grant in regional Victoria from $10,000 to $20,000 from 1 July 2017
- removing off-the-plan stamp duty concessions on investment properties
Affordable housing lobby group National Shelter executive officer Adrian Pisarski said such measures all helped, but formed part of a much larger puzzle.
“I think the package taken together is quite helpful,” he said. “[However] the stamp duty cuts by themselves will add inflationary pressure to the market.”
Mr Pisarski said he did not see a positive impact on mortgage stress in the short term.
“The level of foreign investment demand is increasing pressure on supply. Until proper tax reform is taken at the federal level – negative gearing and capital gain tax concessions – I don’t see an easing of pressure.”
He said we needed specific strategies at the low end of market to address the shortfall in supply.
Digital Finance Analytics principal Martin North said the shared equity plan could assist a few first home buyers, and the vacant residential property tax could increase supply by making it less attractive to buy and hold properties.
“But this will probably boost the supply of rentals, and drive rental prices lower, so I’m not sure it addresses the fundamentals [of housing affordability],” he said.
Some moves could lead to prices rises
Mr North believes two of the new measures are likely to lift housing prices – the removal of stamp duty for first home buyers, and the doubling of the first home buyers grant in regional areas.
“All the research shows this type of ‘assistance’ gets translated into higher prices – so a net sum game,” he said.
While the Victorian initiative may look good on paper, he suspects the real impact on mortgage stress will be close to zero.
“None will assist existing home owners with large mortgages, and large repayments in the current low interest rate but low income growth environment,” he said.
According to Digital Finance Analytics, more than one million Australian home owners would struggle with mortgage stress if interest rates were to rise just three percentage points.
Such a rise would result in close to one in three households from Victoria, Tasmania and Western Australia experiencing mortgage stress. A return to more normal interest rate levels would result in severe mortgage stress, with many households considering selling their property. Mr North said both lower income areas and affluent suburbs would feel the pinch.
Shared equity the way forward
Premier Daniel Andrews said the HomesVic scheme was designed to assist Victorians who were finding it increasingly harder to save for a deposit due to spiralling rents.
“By co-purchasing these properties, we’re helping them to get out of the rental market and into their own home sooner,” he said.
The HomesVic scheme will be open to couples earning up to $95,000, and singles earning up to $75,000. The buyers will need to have a five per cent deposit to purchase either a new or existing home.
The government helping aspiring homeowners with the purchase of their property will result in a smaller deposit being required. They will therefore be able to enter the market sooner and have a smaller loan to service. When the property is sold, HomesVic will recover its share of the equity.
The Victorian government will also contribute $5 million to Buy Assist, a national shared equity scheme run by the community sector. Buy Assist will help low to medium income households get a foothold in the property market, delivering an additional 100 shared equity homes.
Priority for first home buyers
First home buyers will get priority in government-led urban renewal developments in Victoria, with at least 10 per cent of all properties allocated to these buyers.
This approach will be used for the first time at the 56-hectare Arden development in North Melbourne. The precinct between Macaulay Road, Dryburgh Street and the Upfield railway line will accommodate up to 15,000 residents over the next 30 years.
Levelling the playing field
Victoria’s off-the-plan stamp duty concession will now be available solely for those who intend to live in their property or who are eligible for the first home buyer stamp duty concession.
The new vacant residential property tax will encourage owners who unreasonably leave properties vacant to make them available for purchase or rent. It will be levied at one per cent, multiplied by the capital improved value of the taxable property. For example, if the property has a capital improved value of $500,000, the tax paid will be $5000. Exemptions include holiday homes, deceased estates and temporary overseas trips.
Mr Andrews said the changes would help thousands of Victorians make the Great Australian Dream a reality.
“With negative gearing and capital gains tax concessions, the odds are already stacked against first home buyers,” he said. “This will help level the playing field.”