Budget 2017: Housing Winners & Losers
There are winners and losers from the 2017 Federal Budget. Negative gearing won’t be touched, but the government will support people saving for a first home deposit, new superannuation rules to encourage older Australians to downsize, and plans for the government to finance affordable housing.
Here’s our summary of the effects on housing affordability.
- First home buyer super saver scheme
- Super incentive for empty nesters to downsize
- Commonwealth loans for community housing
- Longer lease terms
- Stopping investors from claiming travel deductions
- Unoccupied house tax and other restrictions on foreign investors
The key housing initiatives announced by the Australian Government in the 2017 Federal budget are:
1. First home buyer super saver scheme
People saving for a first home deposit will be able to put aside part of their pre-tax wages into their superannuation, which provides favourable tax treatment. Individuals will be able to salary sacrifice up to $15,000 per year, to a maximum of $30,000. Then these savings plus any earnings can be drawn on. This is is on top of the mandatory employer’s minimum 9.5% contributions, which is not able to be used for a home deposit.
While numerous budget documents promise a “comprehensive housing affordability plan for all Australians” it is hardly the budget first-home buyers were hoping for. – Jennifer Duke, Domain
According to Choice, “The advantage to the scheme is that super funds tend to have better rates of return than a savings account, on top of being taxed at a lower rate. $30,000 is still only a fraction of the cost of a 20% deposit for an entry-level property in Sydney and Melbourne, meaning savers might not be able to rely on it for their entire deposit.”
2. Super incentive for empty nesters to downsize
Typically, older home owners have been reluctant to sell for both sentimental and financial reasons. Often selling property is costly and funds left over after buying a smaller home could then be considered in the means test, according to Domain.
Homeowners living in larger homes will be encouraged to downsize. New rules will allow people to contribute an extra $300,000 from property sales to their super accounts, on top of the current $100,000-a-year cap.
If these downsizers sell, it would free up larger homes and housing stock for younger families upgrading into more suitable real estate. – Jennifer Duke, Domain
This will allow people to put some or all of the earnings from a property sale into their super account and take advantage of the discounted tax rate. Up to 50,000 properties a year could be freed up if empty-nesters moved into smaller houses, according to Choice.
3. Commonwealth loans for community housing
The Government will attempt to address increasing pressure on the rental market as more Australians are locked permanently out of home ownership. The plan is to increase the stock of affordable housing by encouraging more institutional investment in low-cost rental properties, particularly for the community housing sector.
Retail and institutional investors are being lured into investing in Australia’s growing social housing sector with discounts on capital gains, the creation of a new bond market and the roll out of new “micro” city deals. – Matthew Cranston, Financial Review
The government plans to raise money by issuing bonds, which it will lend at low interest rates to institutional investors – community housing groups, industry superannuation funds, and the like. Affordable housing currently makes up just 5% of housing stock in Australia, compared with 18% in the UK, according to Choice.
4. Longer lease terms
The government has announced that they will work with states and territories to create a standard long-term lease – although as with standard leases currently there is no indication that the government wants to make these mandatory. There is also nothing in the Budget that seeks to strengthen renters’ rights in the imbalanced power relationship between tenant and landlord, according to Choice.
5. Stopping investors from claiming travel deductions
Investors who previously had tax deductions for travel expenses related to their investment property will no longer be able to make these claims. The government has ruled them out, even for those travelling to collect rent, maintain or inspect a premises, saying many have been incorrectly obtaining this deduction. This has included situations for “private travel purposes”, according to Domain.
6. Unoccupied house tax and other restrictions on foreign investors
Foreign investors who purchase properties in Australia just to leave them empty will be hit with a unoccupied house tax in an effort to discourage the practice. $16.3 million will be raised from the charge, which will be levied on owners of properties which are “not occupied or genuinely available on the rental market” for six months in the year.
The biggest hit to foreigners, who have been increasing the value and volume of property purchases, will be in the change to their capital gains made on property and their strategy of holding properties without occupying them. – Matthew Cranston, Financial Review
Foreign investors will also have stricter capital gains tax rules imposed on their properties (saving $600 million). In addition, new property developments must now be at least 50% Australian-owned.
Australian investors are still permitted to leave properties sitting empty with no penalty.
Primary source: What does the Budget mean for me? – Daniel Graham, Choice