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The Victorian Government is working hard to create new initiatives that provide first homebuyers with incentives to enter the market. In early 2017 alone it announced that the first homebuyers grant has been doubled to $20,000 for properties in regional Victoria. In addition, it will remove the stamp duty property tax for first homebuyers purchasing a home worth less than $600,000.
Those who’ve saved a 5% deposit can choose to be involved in a shared equity scheme, whereby the government will cover the rest of the deposit, but it will also own 25% of the property. Finally, for those renting, there will soon be an opportunity to choose a long-term rental agreement, which would arguably provide more stability for tenants.
We have a tendency to treat housing affordability as an issue that impacts all Australians equally. But Professor Richard Reed, Chair in Property and Real Estate at Deakin University points out that housing affordability impacts pockets of society differently. ‘More than 20 % of all households are single person households with one income,’ he points out, and explains their view of the housing market is different to that of families or retirees trying to maintain housing.
Overall he says the largest single challenge to housing is the gap between what people want and what they can afford. ‘Previous generations like our grandparents sought to enter the housing market by purchasing a starter two-bedroom home and then trading up over time. Today, many households want a large 200-square metre home with four bedrooms,’ he says. Other modern costs of living are also hindering our ability to save for homes. Prof. Reed highlights the need for mobile phones, technology and cars as well as our culture of travel and eating out as barriers to purchase.
On the surface, there’s no doubt the new initiatives provide a good deal for those trying to enter the market. But according to Tom Keel, Deakin University lecturer in property and real estate, these new incentives have their flaws. ‘These ideas seem like more fuel for the fire as they are still maintaining incentives for investors, while also helping first home owners to compete with them; it may just drive up real-estate auction prices further,’ he cautions and suggests that investors might be the real winners. Prof. Reed adds that the marketplace will factor the saving from stamp duty into the total cost of the home. ‘Rather than taking out a smaller loan, many households will use the stamp duty saving to purchase a larger home,’ he says.
Plus, as long as negative gearing, which allows investors to make a loss on the shortfall of their rental properties is an option for investors, there will be some incentives for investors to out-bid people who’d genuinely like a roof over their head rather than a ballooning investment portfolio. Investors do play an important role in the property ecosystem, though. Without investors, rental supply dips and therefore higher rent can be charged by landlords due to demand.
Some people will definitely benefit. For those who’ve wanted to purchase in regional Victoria, a dream could now be realised and it’s good for local community economies, too. Premier Daniel Andrews said in a statement: ‘Importantly, we’re not making these changes in isolation. As our regional communities grow, we’re also investing in public transport, local roads, and the schools and hospitals they need,’ However, Prof. Reed argues, ‘There will be debate as to whether there is sufficient financial saving to encourage households to relocate there, or for those renting in regional Victoria to commit to housing.’
Overall, the housing market has become what Keel describes as an ‘investment utopia’. ‘Whilst the initial tax-deduction law was based on the good idea of creating more affordable rental housing, the monster is now proving difficult to control,’ he says.
Instead he suggests that time and energy could be better spent elsewhere. ‘Our economy would do better if they moved tax incentives towards stimulating new business/enterprise creation and expansion,’ he suggests. But as long as the great Australian dream of a nice home, backyard and Hills Hoist remains at the centre of our aspirations, it seems such incentives are really only good for political votes and vendors whose property values will continue to rise.
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