The 2017 Federal budget has been mostly received well judging from commentary by property pundits so far. A goldilocks attempt to temper the forces of supply and demand; of foreign investment and affordable housing without causing economic shockwaves. But, Federal Treasurer Scott Morrison or #ScoMo as he is trending was going to have a difficult time pleasing everyone.
“The government is making changes that will help more people realise their goals of home ownership,” said #ScoMo, and as promised, there was quite a lot of policy announced in relation to housing, Paul Kelly of The Australian described it, “A number of interesting fiddles” – a balancing act between supply and demand.
Here are the eight best Budget moments from #Budget17
1 – BIG BANKS SLUGGED TWICE
The budget centrepiece was undoubtedly the Big Bank Levy, which was somehow leaked and stripped almost $14 billion out of the ASX before it closed and prior to the budget announcement. There is something so Australian, so Darryl Kerrigan about ripping $6.2 billion dollars from the coffers of the big banks over the next four years. It rings a little bit of the disastrous Mining Tax, in that we all know deep down that this will be worn by customers and shareholders (which is everyone with a superannuation account) but it feels good, doesn’t it? Don’t think too much about ‘who pays’… just feel it.
2 – NEGATIVE GEARING SAVED BUT NO MORE MINI-BREAKS
Prior to the budget, #ScoMo had vowed not to remove negative gearing, and he hasn’t, save for a few shaved edges in the form of any kind of travel (to inspect investment properties, collect rent etc) and a bit of a crackdown on deductions.
REIA President Malcolm Gunning said of the move, “We are pleased that the Government reiterated that it will not remove or limit negative gearing or change the capital gains tax as this would increase the tax burden on Australians trying to provide a future for their families. This recognises that the current arrangements increase the supply of housing for our growing population, keep rents affordable and ease the burden on social housing.”
Property Managers: note also that here an owner buys a property after 9 May 2017 they will no longer be able to use a quantity surveyors report to increase depreciation deductions. To qualify for the depreciation deduction they will need to incur the amount themselves [for example buying a new dishwasher]. While the extra depreciation claim has been lost, this will at least leave a higher cost base on the property reducing any future capital gain (for more on deductions see the Business Depot blog by John Knight).
3 – SECOND TIME ROUND MAKES SUPER SENSE
We were told pre-budget that first home buyers would not be able to apply superannuation to a deposit. We were told that the First Home Saver Accounts (FHSA) would be resurrected, despite that it was rather unsuccessfully implemented once before. Surprise…these two items merged to create a FHSA 2.0 that functions within an existing superannuation account but that partitions salary sacrificed funds, taxed at lower superannuation contribution rates, for a deposit. See! See what they did? Cheeky.
Nevertheless, this is being welcomed as a measure to help people purchase their first home. Ken Morrison, Chief Executive of the Property Council of Australia says, “Addressing the deposit gap for first home buyers is a critical part of addressing our housing challenge. Our fear was that a scheme that used superannuation would be inflationary. However, the architecture of the First Home Super Scheme appears to be a non-inflationary measure that will help hundreds of thousands of Australians save for a deposit for their first home.”
4 – GIVE ME LAND, LOTS OF LAND
Anyone who has flown into Melbourne in the last five years must have looked down at the rolling plains of Maribyrnong and thought, why don’t we just build more houses right there? #ScoMo must have been on one of those flights, and with a phone call to defence and the stroke of a pen, Melbourne is getting former defence land for development that should create an additional 6,000 dwellings.
“This will keep up the pressure on State and Local governments to meet supply targets, essential to any long-term solution to housing affordability,” said Andrew Cocks, Managing Director of Richardson & Wrench.
5 – ASSISTED DEVELOPMENT
While the land release in Melbourne is a welcomed move, it really is a leadership gesture, as Mr Cocks suggested, to encourage State and Local land releases. A further $75 billion in infrastructure funding over 10 years and a $1 billion dollar National Housing Infrastructure Facility (NHIF) has been established to help local governments create new land developments by providing critical infrastructure such as transport, power and water to undeveloped sites.
Graham Wolfe, HIA Deputy Managing Director said, “The ‘city deals’ expansion into smaller scale projects is also a welcome development: the big ticket projects are important but much can be achieved by removing obstacles to more efficient delivery of homes.”.
6 – NAN AND POP CAN DOWNSIZE TO RIGHT SIZE
On the supply side of the housing equation, incentives to help older Australians downsize is geared at freeing up the supply of larger homes. From 1 July 2018, people aged 65 and over will be able to make a post-tax contribution to superannuation of up to $300,000 from the proceeds of selling their principal place of residence, that they have held for longer than 10 years. – and it will be exempt from the restrictions that would have prevented these types of superannuation contributions for people above the cap of $1.6 million dollars.
It is a great start by #ScoMo but the burden of State stamp and transfer duties represents a significant and remaining hurdle to unleashing this stream of supply.
The REIWA President Hayden Groves said, “While we’re pleased the Turnbull Government have recognised the need to assist Australian seniors with housing affordability, more still needs to be done. REIWA will continue to advocate for reform to transfer duty, specifically a $10,000 concession for seniors to ‘right size’”.
7 – ONE SIZE (DOESN’T) FIT ALL FOR FOREIGN INVESTMENT
The foreign investment restrictions are a three-pronged attack intended to narrow demand to local markets. Measures include a ‘Ghost Tax’ for $5,000 per property per year for foreign ownership properties which are vacant for more than six months; plans to limit the share of foreign investment ownership in new projects; and an increase in duties for foreign investors. The measures have been met with mixed receptions across different sectors of the industry and from different markets.
Mr Wolfe from HIA, has said, “Plans to tax vacant homes, limit the share of foreign investment in new projects and increase foreign investor duties all send exactly the wrong signal to potential investors in Australia. Barriers to investment are not productive for the building industry or the economy more broadly; investment needs to be encouraged”.
Similarly, in the West, where the demand for foreign investment to kick start a depressed market is encouraged, REIWA President Mr Groves said, “Foreign investment in WA represents a very small proportion of our local market. These policies will only further dampen an already subdued housing market and deter foreigners who are not permanent residents to locate and live in WA ,” Mr Groves said.
REIA President Malcolm Gunning has taken a practical consideration of the new restrictions to withholding variations as creating more work for agents. He says, “The change in the threshold for foreign resident capital gains tax withholding to $750,000 from the current $2 million is not welcome and could be considered misguided as most foreign investors buy higher valued properties in Sydney and Melbourne and to a lesser extent in Brisbane.
“It is more red tape and not necessary. With the median house price of $743,776 across Australia this will mean most properties will be subject to this requirement and results in more work for sales agents and conveyancers and depending on the workload this presents for the ATO may even delay settlements.
However, moving into a market such as Sydney or Melbourne where demand from foreign investors is drowning out and pricing out the local buying market – the mood is much more encouraging for #ScoMo’s approach to foreign investment.
8 – AFFORDABLE HOUSING BEAT HOUSING AFFORDABILITY
Some of the most dynamic policy from #ScoMo involved the affordable housing sector, which no longer sits adjacent to residential real estate, but has come of age – through various schema – as a no-nonsense sound investment for mums and dads, as well as government.
Mr Ken Morrison (#KenMo) of The Property Council of Australia has welcomed the new status of affordable housing, “The Budget is not just about home buyers, it also provides significant incentives for new investment in affordable rental accommodation. We want to work with the government and non-government sectors to ensure these measures work.”
Mr Cocks of Richardson & Wrench said, “the 60 percent capital gains tax discount to investors in affordable housing was a necessary measure to encourage the private sector to participate in meeting the growing need for housing amongst the low-paid and welfare beneficiaries.
It is a fine line for Treasury to walk between making houses affordable to those seeking to buy and maintaining the value for those who have bought – a scalpel, not a chainsaw as #ScoMo described. It is hard to believe that it will be a full year before we can use the hashtag #ScoMo again.