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How the Government’s new housing affordability plan will affect developers

Stamp Duty waiver for first home buyers

Starting July 1 first home buyers will be exempt from stamp duty for homes below $600,000. Homes between $750,000 and $600,000 are eligible for a concession also, based on a sliding scale. It’s a real boost for first-home buyers.

These benefits apply both to new homes and established homes in the purchase price range under $700,000.

Given that the median Melbourne house price is $770,000 the new concessions will apply to just under half of the housing stock in metropolitan Melbourne.

The new scheme kicks off on July 1 2017 applying to contracts entered into from that date. It is not retrospective or applicable to contracts before the start date.
At this point the cap is regarded as permanent, with no plans on the table to scale the limit upwards as home values rise. However, if the plan remains as policy, the rising values element will need a review process.

The policy might adversely affect supply

Certainly the generous leg-up for first home buyers will help drive buying in that sector. But the initiative will also increase demand for established homes under the $700,000 threshold. This does nothing to boost supply, which does the heavy lifting to keep home affordability at reasonable levels medium to long term.

Investors lose ‘Off the Plan’ stamp duty concession

For residential real estate investors the picture is not so rosy. Investors will no longer be eligible for the Off The Plan stamp duty concession. This concession was an incentive to attract investor buyers to Melbourne and its removal will certainly scare potential investors away. The concession will remain available however to buyers who intend to live in the property. The Off The Plan stamp duty waiver will also apply to first-home buyers who are eligible under the first homebuyers stamp duty concession.

New tax hit for ‘Off the Plan’ investors

Local investors will be subject to 16% in purchase tax on the price of an Off The Plan apartment. Overseas investors will be subject to a 23% purchase tax on the price of an Off The Plan apartment.

The UDIA (Urban Development Institute of Australia) has criticised this initiative for increasing the cost of providing rental property for the market. Targeting investors with greater amounts of stamp duty does no favours for tenants. The increased expense is passed on, raising rents.

The UDIA also expressed concern that given the increased taxes investors may switch away from property to other investment options. This will bring about reduced supply and produce higher home prices. And higher rent.

Vacant dwellings will be taxed

A new tax on vacant residences will apply if the property remains empty for more than 6 months in one calendar year. The figure will be 1% of the capital improved value. Some exemptions will of course apply – holiday homes, deceased estates, owners who are temporarily overseas, or away for work reasons. The number of unoccupied investor dwellings in Melbourne has been estimated at 80.000 (Speculative Vacancies Report, Prosper Australia).

Regional first homeowners grant doubled

First home buyers grant in regional Victoria will jump from $10,000 to $20,000. This applies to homes up to $750,000. It will apply to contracts dated July 1 2017 to June 30 2020.

‘HomesVic’ offers shared equity

A new initiative named ‘HomesVic’ allows first home buyers to be co-purchasers with the Government. This mirrors a similar existing scheme the UK. Starting Jan 1 2018, first home buyers can apply to have the government take up to a 25% share in their home. This is capped at 400 homes.
This scheme aims to reduce deposit requirements and lower debt repayments. Buyers need to have 5% for a deposit. The scheme applies to couples with a combined income of up to $95,000 or single people making up to $75,000. When the home is sold ‘HomesVic’ takes back its share in the equity.

Critics suggest this initiative will encourage some first home buyers to simply spend more, maximize their new borrowing leverage to gain access to a bigger loan and the best possible dwelling. Producing upward pressure on prices in the under $700,000 category.

‘BuyAssist’ to help low income households

Also introduced on March 5 2017 is the smaller ‘BuyAssist’ scheme that has similar goals to HomesVic. The Government has provided $5 million for the BuyAssist scheme, tailored to give 100 low income households a leg up into the market. Details of the scheme are not available yet.

Increased land supply and faster planning

A plan was announced to develop 17 more residential Precinct Structure Plans (PSPs). This initiative will generate 100,000 lots of rezoned land in the city’s growth corridors by December 2018. The media reported this as 17 ‘new suburbs’. The UDIA (Urban Development Institute of Australia) welcomed the Government’s apparent willingness to boost land supply and cut approval delays, signaling intentions to reform its poorly performing planning system.

Under-utilised Government Land goes to housing

The Government announced a housing pilot program to produce 100 social housing dwellings on under-utilised Government land. The land will be discounted to developers on the basis that social housing is incorporated in any development. 10% of dwellings in Government led developments must be prioritised to first home buyers.

‘Streamlined for Growth’ to be extended

The program ‘Streamlining for Growth’ will be extended to 4 years. $16.4 million was allocated to help reduce red tape. The goal being to retain a 4 month supply of lots for sale. Plus the fast tracking of 30% of permits, with a 10 day turnaround, via the Vic Smart program.

Looking forward

The Government’s Housing Affordability package will certainly add stimulation and excitement for first home buyers. But there are concerns from industry about collateral consequences from the new initiatives that will harm supply, and Victorians in general, further down the track.

The ultimate success of the first homeowners grant must be linked to a Government policy environment that also encourages development and investment, with reduced risk and cost. Because without supply, generous boosts alone for first-home buyers will only contribute to strong price growth and continued problems with affordability.