Since we launched this campaign, we’ve discovered one of the key issues creating concern for Australians is housing affordability. Labor is currently suggesting its proposal to slash property tax concessions including negative gearing on existing properties and capital gains tax discounts will solve the affordability crisis.
This is, quite simply, untrue. And the reason is that the greatest hurdle for first home buyers isn’t actually the purchase price.
Most lenders now require a 20% deposit due to APRA requirements designed to mitigate against the kind of bad loans that helped trigger banking collapses in the US and UK during the Global Financial Crisis; the few lenders who will lend more than 80% of the purchase price also require the upfront purchase of mortgage insurance, which in itself can run into many thousands of dollars.
Either way, other upfront costs including stamp duty and standard expenses like building inspection fees, conveyancing charges and legals all add up.
Unless prices collapse (which Labor says will not happen) there will be no real difference to affordability: for example, if a $500,000 dwelling declines even 10% in value under the proposed changes, the deposit required would fall from $100,000 to $90,000.
Stamp duty, which varies from state to state, would fall from approximately $18,000 to about $16,000, and once the other mandatory costs associated with purchasing property are factored in, a first home buyer would still need well in excess of $100,000 just to enter the market: and this requirement is simply beyond the reach of many young people and couples today.
For comparison, today’s first home buyers are better able to service a home loan than their baby boomer parents, who were faced with 18% interest rates as opposed to standard discount variable home loans available at rates of about 4.5% today.
Finder.com.au recently released a report that showed baby boomers were required to allocate 47% of their income to servicing mortgage repayments, whilst 31% of the average income today is required to service the average mortgage.
Any logical analysis shows that high upfront costs, not the actual purchase price or the size of repayments, are the greatest barrier to first home buyers. Labor’s policy on negative gearing will not materially affect this problem.