There has been much talk of late about the need to provide affordable housing. However, as far as we can see, affordable housing will remain a pipe dream unless there are significant policy changes at all levels of government. There are three elements to be addressed in achieving housing affordability. Firstly, the cost of new dwellings needs to be reduced. Secondly, we need to enable access to housing for those who want to purchase. Finally, and perhaps most importantly, we need to provide access to rental accommodation for those who are not in a position to buy. These policy initiatives seem to have been well understood in the 2017 Budget which recognises the issues and wants State to Local Government and the private sector to help solve the problem.
If we look at the first of these - lowering the cost of new homes - we start on the urban fringes. Here, the cost of land has increased substantially to the point where a block of land costs more than the dwelling. These increases have occurred across the country, but the extent varies by state.
In Melbourne, the median price of land is $224,000. That’s half the price of Sydney’s median at $450,000. This is not caused by either city’s popularity or the fact that there’s more space in Melbourne. It is the result of Victoria’s land release policies. Victoria is currently releasing 100,000 new lots in addition to an existing seven-year supply of land.
In Victoria, state and local government collaborate on land release to ensure prices remain reasonable. Clearly, this type of policy could be implemented on a national basis.
In addition to efficient land release, it’s also possible to reduce taxes and charges for lower income groups. For example, in Sydney and Melbourne, there’s no stamp duty for first home buyers. But it would also be possible to reduce the development and infrastructure contributions levied on developers, allowing them to sell land at lower prices. It’s not well known, but these contributions can be as high as half the price of land!
In relation to the second element of affordable housing - enabling access - this can be achieved through a range of innovative purchasing schemes, such as shared equity between a first home buyer and the government. The West Australian government will put up half the purchase cost, say $200,000 on a $400,000 home, and then take its half share of the eventual sale price. The 2017 budget includes the potential for first homebuyers to access superannuation but this only works for these with sufficient income.
Governments could also consider a range of pre-purchase schemes, such as allowing consumers to buy land at today’s prices for delivery in five years, avoiding excessive price increases and encouraging enforced savings.
Lastly, rental housing. Here the federal government already provides a rental assistance scheme for low income people but it typically covers only 20-40% of the rent. In the past 15 years, this group has been squeezed in the rental market, as a result of an increasing number of high income earners now choosing to rent instead of buy. The government has been discussing with the major corporate players the idea of providing long-term rental housing using low cost federal funding, but affordable rental properties available for the lowest 25% of income earners continues to dismiss it.
However, in the short term, any of the initiatives discussed are unlikely to significantly impact the fundamentals of property development. The big thing to watch is - interest rates.
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