The NSW State Government has announced its First Home Buyer Policy to help Generation X & Y buy their first home. The policy is a part of the NSW State Budget, due to be handed down on 20 June. It’s important to note that these announcements only and need to be passed by State Parliament before they apply.

The Changes:

Key changes for First Home Buyers ¹:

• Abolishing all stamp duty for first homebuyers on existing and new homes up to $650,000 and stamp duty discounts up to $800,000. These changes, to be introduced on July 1 2017, will provide savings of up to $24,740 for first homebuyers, and
• Abolishing the stamp duty charged on lenders’ mortgage insurance, which is often required by banks to lend to first homebuyers with limited deposits, providing a saving of around $2,900 on an $800,000 property.

Related announcements:

• Doubling the foreign investor surcharge from 4 per cent to 8 per cent on stamp duty and 0.75 per cent to 2 per cent on land tax
• Removing stamp duty concessions for investors purchasing off the plan
• Committing $3 billion in infrastructure funding from Government, councils and developers to accelerate the delivery of new housing
• Fast-track approvals for well-designed terraces, townhouses, manor homes and dual occupancy by expanding complying development to include these dwelling types
• Greater use of independent panels for Councils in Sydney and in some regional areas to ensure development applications are done efficiently and to ensure the integrity of the planning process, and
• Measures to maintain the local character of communities.

 

The Analysis

Robert Snell, Certified Financial Planner and Housing Affordability Expert at Life Values Pty Ltd welcomes any announcements, including these that seek to help first home buyers and is pleased they have adopted some of his suggested position paper solutions.

Robert had in his position paper “The Real Home Truth“, identified six issues where the State Government could take action. These covered: (1) housing development and supply, (2) creating first home buyer zoning, (3) looking at stamp duty, (4) reducing the cost of the approval process, (5) setting housing affordability goals and (6) making housing affordability a state and national economic priority.

“Certainly the increases in the stamp duty surcharge make competition fairer for first home buyers at a price point and this is a much welcomed change. But if foreign investors really want to buy in Australia, they might just buy cheaper properties, which are the same properties first homebuyers would buy. Without seeing the economic modelling on this, it’s hard to determine how effective a measure that is in isolation.”

“The removal of stamp duty for first home buyers on properties valued up to $650k is a welcome change. A quick analysis of property stocks at Domain reveal that this affects 26% of properties available in the Sydney region”. He says that this is particularly welcome news for people living 30km or more away from the CBD, given most of these properties fall at this price point. For people who work in Sydney though, this change won’t do much to make properties more affordable given the median house price is $1.15 million².

“It’s important to remember higher incomes and better-paying jobs are located nearer the main CBD. So if you live further away from the CBD, you face a trade-off between lower average incomes and higher commuting time. “I find that this can particularly discriminate against families with working mothers, who are always time poor. Most people, including those with families, need to live within a reasonable distance to work. The further you get away from work, the harder it becomes and the fewer jobs there are.”

Robert has also identified limited stamp duty changes disadvantage older people. “Many older Australians would like to downsize their home as they retire from work. This would free up larger properties for families and first homebuyers that are closer to the CBD. By not looking more widely at stamp duty, we’re limiting the freeing up of this existing supply. The announcement might be seen to be favouring developers as it focuses supply on new developments, rather than optimising existing stocks”.

His analysis concludes that there are some essential measures missing from the policy announcement including reducing the cost of the approvals process, setting housing affordability goals and setting housing affordability as State and National economic priority.

He says that planning and building plans need to be more efficient. “We need to streamline the process of approvals in a way that cuts both the cost and red tape. These costs end up getting passed on to the end consumer and increase the cost of housing for everyone, including first home buyers who can least afford it”.

First homebuyer zoning was also missing from the announcement today. “By creating a stock of homes that can only be bought and sold by first home buyers, we could see a build up of affordable property that can only be exchanged by a smaller segment of the market, without the interference of foreign and local investors.”

The plans released also failed to identify housing affordability goals.  Research shows that in 1981 according to Census figures, 61% of 20 to 34-year-olds had bought a property³. By 2011 that figure had dropped to 43.2%⁴. It is forecast to drop further to 23.7% by 2019⁵.

“Increasing supply alone won’t fix the problem; we need to look at the price too. There’s no point in building more properties if first home buyers can’t afford them because the prices are 12 times earnings⁶ – like they are now”.

In today’s borrowing market, the international standard is that property prices above three time’s annual earnings are considered unaffordable⁷.

“I’m calling on both Federal and State Governments to set a specific target on the percentage of Young Australians who should be able to buy a home. This should include a housing affordability target around a price to earnings ratio for singles, couples and families. Developing policies that help achieve these goals should then follow. These State Government measures work in isolation of the Federal Government measures recently announced.

While incentives for Local Government are included in this announcement it is yet to be seen if they are sufficient to get all councils on board. By 2036 the population of Sydney will grow from the current 5 million to 6.4 million people⁸. Nowhere in any Local, State or Federal Government policy do we see if this population will be owners or renters. At 12 times annual income, you’d argue that most people will be renters because we’re not addressing an affordable price target. These proposals may stop the problem from getting worse but it doesn’t solve the core problem that properties are expensive compared to what average Young Australians earn”.

“If we can’t get governments to work together, then we propose to create a National Housing Affordability Planning Organisation (NHAPO). NHAPO would have access to high-level economic analysis and could then work with existing city-based groups such as The Greater Sydney Commission along with infrastructure bodies such as infrastructure Australia as well as Federal, State, Local Governments and their Departments.”

 

The Opportunity for the First Home Buyer

We expect the changes to be passed by State Government, but until then it’s important to release that the existing rules apply.

The opportunity for people who want to buy and pay off their own home is to seek advice. “We know that some people wonder if it is possible, that’s why we created Own It. Own It is an advice and coaching programme to help Young Australian’s buy and pay off their first home in 80-120 months. Increasingly we the negative press, we are seeing that our youngest clients wonder if it is even possible to buy a home these days. With advice, we can provide that answer.”

Life Values is offering a free appointment to people who would like advice about buying and paying off a home. Parents are also welcome to attend the appointment, as often they wish to help their adult children get a head start.

To make a free appointment contact us.

 

Footnotes

1. NSW Government (1/06/17). A fair go for first home buyers, a plan to improve housing affordability.
2. Domain March 2017 – State of the Market Report.
3. Bleby, M. (5/4/2014), Boom threatens the great Australian dream of a home, Sydney Morning Herald.
4. Nine News (13/7/15), quoting from BIS Schrapnel
5. Nine News (13/7/15), quoting from BIS Schrapnel
6. Demographia (2017), 13^th Annual Demographia International Housing Affordability Survey: 2017, 28.
7. Demographia (2017), 13^th Annual Demographia International Housing Affordability Survey: 2017, 28.
8. 2016 Population Projections, NSW Government Planning and Environment