Written by Stefan Kostarelis
Last night, Treasurer Scott Morrison handed down the 2017 Federal Budget.
It included a housing package that Morrison emphasised as not being a “silver bullet” to the emerging housing affordability crisis.
The Budget’s affect on housing is wide-ranging and will impact people differently. Let’s take a look at the likely winners and losers with regards to the property market.
First home buyers
From July 1st, first home buyers will be able to dip into their superannuation to pay for a deposit.
Given that superannuation contributions receive a more favourable tax treatment, this move will provide an incentive for first home buyers to save up for that crucial first deposit.
However, there are limits on how much can be contributed and withdrawn in a year, with first home buyers able to contribute up to $15,000 a year and $30,000 in total.
They will then be able to withdraw the funds starting from July 1st next year.
Couples, who can both take advantage of the scheme, could withdraw $60,000 between them. While that may be 10% deposit on a decent place in Adelaide, it won’t get you far in Sydney, where the median house price has surged to $1.15 million.
The Budget has given retirees holding onto their family homes have been a sizeable incentive to downsize.
From July 1st next year, homeowners aged 65 and over selling a home they have lived in for over 10 years will be able to make a non-concessional contribution of up to $300,000 into their super from the proceeds of the sale.
As with the first home buyers initiative, both members of a couple are allowed to take advantage of this for the same home.
The goal of this is simple. If the baby boomers vacate larger houses, it will presumably free up real estate for younger families looking to upgrade.
There are potential hurdles here though. Many boomers may not be keen on moving due to sentimental reasons. Furthermore, there is a financial issue in play since moving will typically entail paying thousands on fees and stamp duties.
Builders and developers
The government insists that housing affordability is a “supply issue” (at least one expert says it’s got more to do with speculative investment) and is placing a focus on building more homes to ease the problem.
Included in the Budget are measures to work with states and territories to reform planning and zoning laws, which will open up surplus Commonwealth land for development.
A $1 billion National Housing Infrastructure will be established to address “critical areas of undersupply” and could be a boon for builders and developers.
In Melbourne, for example, land for a new suburb 10km from the CBD will be unlocked. This suburb, located on old Defense land in Maribyrnong, could contain as many as 6000 homes.
Likewise, the so-called “Western Sydney City Deal”, a huge revamp of Sydney’s outer west, is planned to involve the construction of thousands of new homes.
Investors who use negative gearing
Negative gearing remains, but new restrictions for what can be claimed will come into effect on July 1st.
Under the new rules, depreciation deductions for household items such as washing machines and ceiling fans will only be allowed if the investor actually purchased them.
In addition, investors will no longer be able to claim tax deductions for travel “related to inspecting, maintaining or collecting rent for a residential rental property”.
The measures are intended to address concerns that items and trips are being deducted inaccurately.
The Budget cracked down on foreign investors with a range of measures.
New developments will be subject to a 50 percent cap on foreign investment approvals, and capital gains tax rules are also being tightened for foreign investors.
Starting from yesterday, foreign buyers will also be hit by a tax if they leave properties they own vacant for at least six months of the year. The annual charge will be equal to their foreign investment application fee.
As noted by Domain, critics of foreign investors have long warned about “absentee” property owners leaving important CBD real estate empty and adding pressure to the rental market.