With the 2022 election behind us, it’s time to look ahead and see what Saturday’s result will mean for the Australian property market.
Housing affordability became an important issue on the campaign trail, with both major parties putting forward their own proposals to help soften the blow for first home buyers.
Now that the Labor party has been sworn in to office, the spotlight falls onto their Help to Buy scheme and how the new government plans to address runaway house prices.
What is the Help to Buy scheme?
At the forefront of Labor’s housing plans is the Help to Buy scheme, a shared equity scheme designed to lower the threshold at which first home buyers can afford to enter the market.
Under the scheme, the government will contribute up to 40% of the purchase price for a new home (30% for existing homes) for eligible homebuyers. With the governments support, eligible applicants can apply for a home loan with a deposit as little as 2%.
Maximum price caps do apply however. In Victoria, the scheme will assist purchases up to $850,000 on Melbourne properties and $550,000 in regional areas.
There is also an income threshold for eligible homebuyers which is $90,000 per annum for singles and $120,000 for couples. If this income threshold is exceeded for two consecutive years, the homebuyer will be required to repay the government contribution either partially or fully (depending on their individual circumstances).
The scheme plans to help up to 10,000 Australians per year and is not expected to be available until 2023.
So what’s the catch with this scheme? Well, the government will have a stake in your home until you choose to sell or pay off their contribution. This includes capital gains on that stake when the property likely appreciates in value.
It also encourages buyers to take on a large amount of debt whilst only having saved up a small deposit. This strategy can be dangerous as some buyers may risk overextending themselves with their debt exposure.
On top of Help to Buy, Labor has said that they will also keep the current First Home Guarantee scheme.
This scheme also allows home buyers to break into the property market with a smaller deposit (between 5% and 20%) and without needing to pay LMI. Under the First Home Guarantee, the government underwrites the loan for eligible applicants, effectively guaranteeing the bank from the borrowers risk.
What are Labor’s housing supply initiatives?
Labor has also pledged to boost housing supply, hoping to ease affordability problems for the lower end of the market.
This includes plans to invest $10 billion into a Housing Australia Future Fund, a fund that aims to build 30,000 new social and affordability housing properties over its first five years. 20,000 of these properties will be designated social housing, whilst another 10,000 affordable homes are allocated to front line workers.
The Labor government will also set up a National Housing Supply and Affordability Council (NHSCA) which will be advised by a panel of experts from relevant industries.
The main goal of the NHSCA will be to set land supply targets in consultation with state and territory governments. The council will also be collecting and publishing national data relating to housing supply, demand and affordability.
The hope of these initiatives is to keep up with a boom in international immigration and housing demand that is expected to take place over the next few years.
What impact will Labor’s win have on property prices?
Industry experts have expressed concerns that these efforts won’t nearly far enough to address housing affordability for lower income Australians.
Previous government initiatives such as the First Home Guarantee scheme and First Home Owners Grant have only been able to help a small portion of home buyers. For others, these schemes have only added fuelled a market that is already experiencing high levels of demand.
In the 12 months between March 2020 and March 2021, around 155,100 owner-occupiers purchased their first homes in Australia. With annual cap of 10,000, the Help to Buy scheme won’t be able to help the vast majority of first home buyers.
Despite this, we are still likely to see a fall in property prices over the short term. Last year’s property boom has finally run out of steam, with auction clearance rate numbers falling to their lowest point in over a year.
This week, figures released by Westpac show that home buyer sentiment is at its lowest levels since the Global Financial Crisis.
Another major factor will be the Reserve Bank who are expected to raise the cash rate further over the next 12 months. If we do see a 2-3 per cent increase which many are predicting, it will only add further downward pressure to property prices.
But even with a potential dip on the horizon, the property market will likely require more extensive policies to tackle the growing problem for home buyers.
As long as property prices continue outpacing national wage growth, rental and housing affordability will undoubtedly remain a defining issue for future elections.
