Monday, March 6, 2017

Federal Budget Watch - I rent and I vote!

The plot thickens as Federal Budget night edges near, with Treasurer Scott Morrison confirming the 2017-18 budget will include a "housing package" of sorts.

Comes with everything you need to construct a
new gingerbread house for Mickey and Minnie!

Speaking to Sky News on Sunday, he said:
I'm as much concerned about someone who is on a low income struggling with their rent as I am with someone who I know wants to get into the home ownership market. They're both important challenges.
This is fantastic news! In a remarkable break from tradition, the Federal Treasurer has acknowledged that people in rental stress are doing it tough!!!

Just exactly what this means is still a matter for speculation, but Morrison has suggested he'd like to collaborate with the states and territories to deliver a supply side intervention. This is in keeping with reports he's considering an Affordable Housing Bond Aggregator while backing away from the National Affordable Housing Agreement. It also fits nicely with current mutterings in favour of inclusionary zoning reforms for New South Wales. All things considered, this points to an increase in available funds for community housing landlords to deliver Affordable Housing tenancies - that is, tenancies offered at around 80% of market rents to eligible renters - while leaving the social housing system that delivers significantly more secure and affordable homes to low income households to fend for itself. This would be two steps forward and three steps back.

It remains pretty clear that tax reform wont make a strong appearance, if it makes one at all. Morrison derided the Opposition's intention to limit negative gearing and capital gains tax discounts as a "silver bullet" plan, implying such changes might not produce the Government's desired outcome of increasing supply. With respect, it's hard to see how tweaking the current tax regime to shift investor demand towards new construction would not deliver such a result, but given the extent to which the Government has steeled itself against the Opposition's tax and housing policies it would be a surprise to see them come out and support them now. That's a real shame, because as far as structural reform to improve Australia's private rental market goes, negative gearing and the capital gains tax discount are the low-hanging fruit.

The focus on increased supply over diminished speculative demand adds intrigue to any suggestion that incentives for first home owners might also be in the mix. From "no-deposit" loans for renters to allowing would-be home owners to dip into their superannuation to come up with a deposit, it seems the only kind of incentive that hasn't yet been flagged is a direct grant to first home buyers. Most would accept by now that grants for home buyers really just push prices higher and do very little to make housing affordable, beyond some light relief for those already in a position to buy. But for some reason these other kinds of incentive seem to be taken seriously. Indeed, they play off the idea that house prices rising in perpetuity is not only inevitable, but desirable, and that we must do everything within our means to minimise the number of people who miss out on the housing goldmine. Even if it means selling off the silverware for scrap.

Such incentives are not really housing affordability measures at all, but measures to encourage more people to buy into an unaffordable housing market. Without linking such incentives to the construction of new dwellings they would do little to relieve the stress on the rental market - a home buyer who exits the rental market after purchasing an established dwelling does not produce a new rental vacancy if the household they've displaced still requires somewhere to live. So, if the Treasurer does go against the Brown Couch's advice and moves to introduce some kind of incentive for first home buyers, it would need to be tied to the construction of a new dwelling if it is to qualify as a measure to combat rental stress. Anything less should not even be considered window dressing.

Again, this is all speculation, which is, after all, our national pass time. No doubt we'll be discussing this further between now and Budget Night on Tuesday May 9th.

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