Homebuyers, Housing Affordability and the Federal Election – What Developers need to know
With housing affordability still a major issue in Victoria and nationally, as part of their pitch for the upcoming 2022 Federal election both major parties have announced policies on the demand side to try and improve housing affordability. The ALP has opted for a shared equity scheme and the Coalition has doubled down on first home buyer concessions.
So that developers are across incentives and concessions that may be available for their purchasers in a tightening market, below we take a look at what is on offer.
After the election and once the winner has been announced, Part 2 of this article is be released where we will look at what will happen in more detail and work through how that relates to the various State schemes that overlay the Federal schemes.
Australian Labour Party – Help To Buy
The ALP has announced its Help to Buy housing scheme as part of a suite of policies amid concerns over rising house prices in the Australian market.
Help to Buy is a shared equity scheme that proposes to help 10,000 home buyers each year by allowing the government to make a contribution to the purchase price of a home. Specifically, access to Help to Buy will allow purchasers to receive a contribution to the purchase price of up to 40% for a new home, or 30% for an existing home, and will receive an equity stake in the property. This will, according the ALP, allow lower income earners easier access to the housing market by reducing up-front expenses and ongoing mortgage costs.
Eligibility for Help to Buy
The proposed eligibility requirements for Help to Buy are:
- Australian citizenship and is of at least 18 years of age
- earns $90,000 or less per annum for individuals, or $120,000 or less per annum for couples, apparently this refers to gross annual income
- lives in the purchased home as their principal place of residence
- does not own any other land or property – either in Australia or overseas
- has saved the required minimum 2% deposit of the home price and qualify (and can finance) the remainder of the purchase through a standard home loan with a participating lender
- associated purchase costs like stamp duty, legal and bank fees are paid by the purchaser. Purchasers will also be responsible for ongoing costs like rates, owners corporation fees and any other bills.
The property being purchased also needs to fall below the Property Price Cap for that Region:
|Eligible Region||Property Price Cap||Eligible Region||Property Price Cap|
|NSW - Sydney and regional centres||$950,000||VIC - Melbourne and regional centres||$850,000|
|NSW - rest of State||$600,000||VIC - rest of State||$550,000|
|ACT||$600,000||SA - Adelaide||$550,000|
|QLD - Brisbane and regional centres||$650,000||SA - rest of State||$400,000|
|QLD - rest of State||$500,000||TAS - Hobart||$550,000|
|WA - Perth||$550,000||TAS - rest of State||$400,000|
|WA - rest of State||$400,000||NT||$550,000|
Help to Buy also sets out the approaches that will be taken for secondary implications arising out of the equity and mortgage aspects of the contribution.
|Other considerations||Assistance from Help to Buy|
|Lenders Mortgage Insurance (LMI)||Purchasers will not be required to pay LMI|
|Buying back the stake||During the loan period, the stake can be bought back in 5% increments|
|Exceeding of earnings threshold||If the buyer's earning threshold is exceeded for two consecutive years then the contribution becomes payable in whole or part. There is not much more detail on this element. The Coalition has proposed that purchasers would be turfed out of their home and forced to sell. In reality, we assume that this would involve a refinance to cover all or part of the government's stake.|
Repayment will be based on individual circumstances.
Coalition – Home Guarantee Scheme
On the other side of the net, the Coalition has proposed to continue and expand its First Home Guarantee Scheme, now rebadged as the Home Guarantee Scheme.
The principal of the Home Guarantee Scheme is that the government guarantees the difference between the deposit provided by the purchaser and the 20% threshold usually required by lenders to qualify for a lenders mortgage exemption, meaning no lenders mortgage insurance is required.
Eligibility and other details of the scheme are as follows:
- 50,000 places per annum until the government closes the scheme
- 35,000 places are for first home buyers, 10,000 places are for regional buyers (this cohort is not limited to first home buyers) and 5,000 places are for single parent families (again, this cohort is not limited to first home buyers)
- open to Australian citizens of at least 18 years of age
- taxable income (note not gross income) must not exceed $125,000 for singles or $200,000 for couples
- the buyer must have saved at least 5% but not more than 20% of the value of the property. For single parent families, the deposit saved can only be 2% of the value of the property
- the buyer must occupy the property as its principal place of residence – it is not available for investment properties
The Home Guarantee Scheme will also have purchase price caps as follows:
Coalition - The Super Home Buyer Scheme
At the eleventh hour, the Coalition has also announced that it will allow first home buyers access to their superannuation to buy a home if elected.
From the high level detail available so far, eligibility and other details of the scheme are as follows:
- open to Australian citizens who are at least 18 years of age
- for first home buyers only, who will live in the purchased home as their principal place of residence
- the homebuyer can use up to 40% of the superannuation, capped at $50,000, and must have separately saved at least 5% of the deposit
- on sale, the funds taken from super must be returned to super along with a proportional part of any capital gain. How this works in practice is not clear – if the Coalition is successful, it will be interesting to see more details on this
- the scheme would start by 1 July 2023
- associated purchase costs like stamp duty, legal and bank fees are paid by the purchaser. Purchasers will also be responsible for ongoing costs such as rates, owners corporation fees and any other bills.
From the little detail available so far, it seems that access to the Super Home Buyer Scheme is broad, with no caps on taxable income or property value and with the purchase of both new and existing homes eligible for draw-down from superannuation. Each person in a couple is also able to access their superannuation independently to invest in their home purchase.
Summary and takeaways
Some bold and headline grabbing policies are on the table. Whether either party will capture votes on the back of their proposed scheme remains to be seen. Our key thoughts and takeaways for developers are below:
- Regardless of who wins, there will be even more incentive and concession schemes for purchasers and their conveyancers/lawyers to try and understand, particularly when State policies are overlayed on to Federal policies. Whilst eligibility for any of these schemes is principally a purchaser issue, developers need to be very careful about making any representations about eligibility when selling. Many of the principles around misrepresentation arising from the Ripani v Century Legend Pty Ltd case that we covered in our recent article, would apply to representations around purchaser incentives and concessions.
- We have seen a reasonable number of instances where purchasers have received poor advice from their conveyancers/lawyers on incentives and concessions, and then made claims against developers, unsuccessfully, at settlement when the realisation hits that a purchaser is not eligible and struggles to settle. Be vigilant in monitoring information provided to buyers around concessions and promotions, particularly the off-the-plan concession in Victoria.
- Given the relatively small size of the ALP Help To Buy and the Coalition Home Guarantee Scheme, it is unlikely either of those schemes will meaningfully move the needle much on housing affordability but at least it is a step in a positive direction. Shared equity schemes have been successful in overseas jurisdictions, including the UK, as well as some States in Australia.
- What impact the Super Home Buyer Scheme will have remains to be seen if the Coalition is successful. It has certainly made a lot of noise and polarised opinion. From the detail we have seen so far, it could potentially have the broadest application of the policies proposed.
- Without wanting to point out the obvious, none of the above proposed Federal policies address the critical issue of supply which is a large part of the housing affordability issue, although this largely rests with State Governments. Unfortunately, the recent opportunity to reform the planning scheme in Victoria and help with supply was pulled along with the proposed affordable housing levy. Whether the State Government will revisit that policy during the State Government election cycle later this year remains to be seen.
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