New policies barely lighten the load when it comes to affording a home

New policies barely lighten the load when it comes to affording a home

With cost of living pressures starting to bite, housing affordability has moved to centre stage of the election campaign, but the policies of the two major parties are unlikely to deliver much relief to home owners or renters because when it comes down to it, neither party wants house values to fall.

Labor hopes to woo voters with a promise to help 10,000 aspiring first home buyers into the market via a new shared equity scheme. By the government taking on up to 40 per cent of the price of a new home (or 30 per cent of an existing property), Labor’s scheme will help moderate-income earners by reducing the amount they need to borrow upfront. It will allow qualifying households with at least a 2 per cent deposit to get into the market, and allow them to ultimately buy back the government’s equity share in their property over time, as their circumstances improve.

Labor will help out 10,000 first home buyers a year.Credit:Peter Rae

Shared equity schemes can help moderate-income earners because they reduce both the total loan amount as well as the deposit needed to buy a home. Several Australian states have modest schemes like this in place and they are well established in Britain. But unless they are targeted to dedicated new housing stock, Labor’s scheme may simply contribute to more house price inflation. The Greens’ shared equity scheme aims to underwrite a more ambitious 125,000 homes and is targeted at key workers.

The Liberal Party’s home deposit guarantee scheme allows moderate to higher income earners to take out home loans with only a 5 per cent deposit (or 2 per cent for single parents). Labor has a similar scheme for up to 10,000 first home buyers in regional areas. While likely to be popular with eligible first home buyers, experts have criticised the approach as fuelling demand without contributing to new housing supply. Worse, the scheme encourages first home buyers to take on very high levels of debt, at a time with interest rates are projected to rise, but the property market expected to cool.

What about renters? And with rents beginning to escalate especially in regional areas, the fastest relief for renters would be to increase rental subsidies, but neither party has promised to extend or increase rent assistance beyond the consumer price index.

More housing supply is needed, especially of affordable housing.Credit:Dan Peled

The two major parties do not want house prices to fall because high house prices make the two-thirds of Australians who already own their homes feel wealthier, and that supports consumer confidence. Buoyant house prices also support new construction, one of Australia’s largest industries of employment. The combined spectre of rising costs of living, interest rate hikes, and falling house prices will exacerbate pressures across the entire economy.

With these economic headwinds gathering, it is mystifying that neither of the major parties are offering a significant boost to new social and affordable housing supply. Labor has made a modest commitment to increase the supply of social and affordable homes, funding 30,000 over the next three years. But with research pointing to a current undersupply of about half a million such dwellings, this promise is not enough.

For the past two decades, both sides of politics have emphasised housing supply as the answer to worsening affordability. But while the private market has delivered record levels of housing construction over the past five years, the supply of social housing has barely changed. With a cooling property market, the economic impetus for new private sector housing construction will also falter, affecting the construction industry.

In the past, government support for social housing construction offered counter-cyclical relief to the building industry, while ensuring that the supply of new homes matched population growth, not the vagaries of the housing market. Labor’s election policy does signal that the Commonwealth will resume its leading role in setting a national housing and homelessness plan, something which is sorely lacking in Australia.

Let’s hope that before the election, all parties add more weight to their promises around housing. To help first home buyers, any shared equity program should be linked to affordable and environmentally resilient new construction, leveraging the land use planning powers of the states. A much higher commitment to fund social and affordable housing is also necessary to meet existing backlog and forecast need. And Commonwealth Rent Assistance must be raised.

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