We outline the key implications for housing affordability announced in the 2017 Federal Budget.
The housing affordability measures in the Federal Budget 2017 are relatively modest and unlikely to have a major impact on housing affordability in Australia. Most of the measures announced in the Budget are aimed at boosting the supply of housing by encouraging either the development of new dwellings or more effective use of the existing stock of dwellings. This is particularly relevant for the heated property markets of Sydney and Melbourne.
To boost the supply of affordable rental housing, the Budget introduces a 60 percent capital gains tax (CGT) discount to Australian resident individuals who invest in rental properties that are provided at below market rent to eligible tenants on low incomes. This concession will also flow through to Australian resident individuals who invest in such properties via qualifying ‘affordable housing managed investment trusts’.
There are two main initiatives in the Budget that target more effective use of the existing dwelling stock. The first aims to facilitate downsizing by older Australians by allowing individuals aged 65 and over to make an additional non-concessional contribution of up to $300,000 to their superannuation fund from the proceeds of the sale of a principal place of residence held for at least 10 years. The second initiative targets under-utilisation of dwellings by foreign owners. Foreign owners that do not occupy or make their properties available for rent for 6 months or more each year will be charged an annual fee of at least $5,000.
Foreign investors will also be impacted by two additional Budget initiatives. First, a 50 percent cap on pre-approved foreign ownership in new multi-storey developments with at least 50 dwellings will be introduced. The aim of this policy is to improve access to such developments for Australian buyers. Second, foreign investors will be less able to avoid paying CGT in Australia upon disposal of their investment in Australian property, with the introduction of more stringent CGT rules, including an increase in the CGT withholding rate from 10 to 12.5 percent and reduction in the threshold from $2 million to $750,000.
To assist first home buyers entering the property market, the government has introduced the First Home Super Saver Scheme, which will commence on 1 July 2017. The scheme allows first home buyers to use their superannuation fund as a vehicle to save for a house deposit. The concessional treatment of savings in superannuation vehicles allows first home buyers to build their deposit more rapidly.
KPMG’s overall assessment of the package of measures in the Budget is that they will improve housing affordability in Australia, although the markets where the problem is most acute, Sydney and Melbourne, are unlikely to get much relief in the short term. The measures aimed at boosting supply are likely to have the greatest impact in moderating house price growth.
KPMG has recognised that the housing affordability problem is complex and that a solution must encompass supply and demand side initiatives. The problem cannot be fixed overnight and will require policy co-ordination from all tiers of government and co-operation with the private sector. KPMG sees the measures contained in the Budget as broadly constituting a positive step forward, but additional policy initiatives – including tax reform – will be necessary to tackle this complex issue.