Housing Policy

• Housing

  A 'stock'
• Focus of housing policy

  New flows or new households
• New supply is affected by the construction lag
• Housing policy


  Often focusses on housing affordability
• Government incentives


  • Making housing cheaper
  • Give people money to spend
  • Accelerate construction of new dwellings for a target market
• Purposes of housing policy

  • Provide incentives for new building programs
  • Guide future requirements and location of new housing
• Unequal distribution of income

  Some people have insufficient income to secure adequate housing
• Housing is not accessible to the low-income earners eg below $31k
• The market does not/cannot provide housing for low-income households
• Housing policy needed to ensure adequate housing for all
• Housing policy needed to provide for the housing needs of special needs groups
• Outcomes affected by provision of appropriate housing

  • Labour market outcomes – access to employment
  • Child development – security of tenure
  • Health – housing quality
• Government policy instruments

  • Monetary policy
  • Fiscal policy
• Monetary policy

  • Responsibility of Federal government / RBA
  • Primary instrument is the use of interest rates to affect demand for housing
• A fall in interest rates will increase demand for housing via various channels
• Monetary policy is not effective at delivering outcomes for specific groups
• Fiscal policy

  Taxation & transfers (spending)
• Levels of government implementing housing taxes and transfers

  • Federal
  • State
  • Local
• Housing market participants affected by taxes and transfers

  • Owners
  • Landlords
  • Renters
• Fiscal policy is more effective as it can target policy to specific goals
• FHB are affected differently by the FHOG and stamp duty exemptions than homeowners
• Limited stock of housing

  Supply side: scarcity and inelastic

  limited potential for policy to have impact
• Flows are relatively small

  • adding to current stock controlled by developers
  • construction lag
• Housing policy instruments in Australia

  • Federal tax
  • Federal transfer
  • State tax
  • State transfer
• Negative gearing

  • Investments properties give a tax benefit when incurring a loss
  • Designed to increase number of private sector rental properties on the market
  • Motivate and incentivise landlords
  • Targeted at landlords looking for long term capital growth
• Negative gearing is a fiscal policy because of the taxation benefit
• Effects of Negative Gearing

  • Without an investment property
  • With a negatively-geared investment property
• Arguments for retaining negative gearing

  • A way to stimulate supply in the PRS
  • If you buy an existing house it is not increasing supply
  • Focus on new build would have an impact on supply
• Arguments for removing negative gearing

  • Increased govt expenditure
  • Changes to the market - investors may exit and flood the market (negative in the short term)
  • It is another layer of demand on supply – investors competing with FHB
• Capital Gains Tax

  • Main residence is generally exempt for Australian residents
  • Owners pay CGT upon the sale of an investment property
  • A 50% reduction in tax is an incentive to promote investment in housing
• Stamp Duty Exemption

  • A state-based taxation policy targeted at FHBs and downsizers in some states
  • FHBs in WA for home purchases below $430,000 are exempt from stamp duty ($300,000 for land)
• Stamp Duty Exemption Examples

  • Tax liability on $500k apartment purchase (FHB vs non-FHB)
  • Tax liability on $1m existing dwelling purchase (FHB and non-FHB)
  • Tax liability on $250k land purchase (FHB vs non-FHB vs investor)
• Housing Australia Future Fund (HAFF)

  • Established on 1 November 2023 by the Housing Australia Future Fund Act 2023 (HAFF Act),
  • a dedicated investment vehicle to provide additional funding to support and increase social and affordable housing, designed to help those on low incomes (targeted policy),
  • on establishment, the HAFF was credited with $10 billion
• Housing Australia Future Fund (HAFF)

  • Supply-side policy – targets investors, Shifts supply curve out by increasing the supply of social and affordable housing
• Commonwealth Rent Assistance

  • Direct cash transfer to low-income tenants in the PRS and community housing,
  • designed to reduce the rents of private renters who receive an income support payment (ISP) e.g. Job seeker, Age Pension, Carer Payment, non-homeowner in a retirement village, +
  • while effective in theory, rents have risen faster than CRA
• Home Guarantee Scheme

  Federal government guarantees the difference between the deposit saved by an eligible borrower and the 20% deposit required before lenders mortgage insurance is required

  • eligibility of property and borrowers apply,
  • the Guarantees are not a cash payment or a deposit for a home loan, limited places available,
  • reduced time required to save for a deposit and the cost of mortgage insurance,
  • demand side policy making first home purchase more affordable
• First Home Owner Grant (FHOG)

  $10,000 for New Home or Building New Home, property value cannot exceed $750,000 for properties south of the 26th parallel or $1,000,000 for properties north of the 26th parallel, designed for FHBs focussed on deposit constraint
• First Home Owner Grant/Boost history in WA

  • 2001: Boost of $7,000 to FHBs, 2008-09: Boost of $14,000 to FHBs who bought a new home and $7,000 to FHBs who bought an existing home, 2009-10: Boost of $7,000 to FHBs who bought a new home and $3,500 to FHBs who bought an existing home, Dec 2016: $5000 boost – abolished as of 31st June 2017, Current: $10,000 towards new dwellings
• First Home Owner Subsidies

  • Demand-side policy – targets housing consumers, Shifts demand curve out, Construction lag, price
• Motivation for FHOG and FHOB (Boost) do NOT generally reflect housing policy objectives