The initiatives announced in the 2021-2022 Budget continue to largely focus on alleviating some of the pressures that exist in relation to first home buyers and affordability, but do little to address the root causes: housing supply (largely a state government issue), and low-interest rates.
In summary, the key budget measures are:
The Family Home Guarantee Package - where single parents with a household income below $125,000 would only need to save a 2% deposit to be able to enter the market. The government will guarantee the remaining 18% of a 20% deposit.
The scheme, similar to the existing First Home Loan Deposit Scheme (FHLDS), will offer up to 10,000 places over a four year period commencing 1 July 2021. Eligible individuals include both single parent first home buyers and single parents attempting to re-enter the housing market following divorce/family breakdown, with applicants able to either build a new home or purchase an existing home. The government estimates there are around 125,000 single parents eligible for the scheme.
While welcome, it is worth highlighting that the initial tranche of 10,000 places only covers around 8% of the estimated eligible families and is spread over four years. There may well be scope for the scheme to be expanded, as has been the case with the FHLDS.
An additional 20,000 places will be made available under the First Home Loan Deposit Scheme for the 2021-22 financial year. Half will be exclusively available for first home buyers building or purchasing a new home with the remaining 10,000 places again available for the purchase of either a new or existing home.
As has been the case since its commencement, eligible first home buyers will be able to enter the market with just a 5% deposit, with the NHFIC guaranteeing a participating lender up to 15% of the value of the home purchased. There are currently 27 participating lenders across Australia.
The FHLDS was introduced from 1 January, 2020, with an initial tranche of 10,000 places, followed by an additional 20,000 places over 2020-21, with 10,000 places for the purchase of a new or existing home followed by 10,000 places exclusively for purchasing/building a new home.
It is interesting to note that around 1,800 guarantees from the initial tranche were reissued after buyers were unable to complete their intended purchase. This does highlight that while both the above packages provide/will provide significant assistance, many prospective purchasers on low incomes still face difficulty in servicing loans.
The maximum amount that can be withdrawn from superannuation under the First Home Super Saver Scheme (FHSS) has been increased from $30,000 to $50,000. The scheme was introduced in 2017-18, and allows eligible buyers to make and then withdraw voluntary contributions to their super fund for the purpose of saving for a first home deposit.
Also related to superannuation, the so-called downsizer scheme, which has allowed people aged 65 years and over who sell their family home to make a one-off $300,000 contribution to their superannuation outside the concessional and other rules ($600,000 for couples) has seen the age eligibility lowered to 60 years. Remember the home needs to have been owned for 10 years. The revised eligibility will begin on July 1, 2022.
An additional $124.7 million will be provided to the states and territories to increase their public housing stock.
Indirectly, moves to overhaul the tax treatment of foreign investors and financial service providers have the potential to benefit prestige markets over the medium term, given their stated aim is to attract "global talent".
Also, a $10 billion-dollar reinsurance pool guarantee to help underwrite cover is anticipated to reduce insurance premiums by around $1.5bn (over 10 years) for 500,000 residential, strata and small business policy holders in Northern Australia. These regions are most impacted by extreme weather events.
The budget did highlight that dwelling investment is forecast to grow by 2.5% in 2020-21 as the large pipeline of work supports construction activity. This growth can be largely attributable to the work brought forward as a result HomeBuilder stimulus and is dominated by detached housing. Thereafter, figures are forecast to be maintained in 2021-22 before falling by 1.5% in 2022-23.
The outlook for higher density supply is more fluid. It was identified that as the outlook for elevated levels of detached house construction unwinds, slower population growth is also expected to limit demand for higher-density dwellings in coming years. The extent of structural change around working from home habits and a preference for more outer-city, spacious and detached housing also remains unclear.
Despite some earlier speculation, there were no specific measures announced to assist recovery in the apartment sector, with the government seeming content to let market forces play out. The return of overseas migration and international students will be important, particularly for Sydney and Melbourne. One of the underlying assumptions in the budget is that overseas migration will not start to return until mid-2022, and even then, only gradually.