The Morrison government’s proposal to underwrite loans for first home buyers has been met with near universal criticism from real estate agents, housing affordability advocates and policy advisors.
Numerous industry luminaries have come out swinging against the Morrison government’s May 13 promise to underwrite home loan deposits for 10,000 first homebuyers, cautioning the plan is unlikely to have its intended effect.
The policy could even lead to would-be buyers being inadvertently disadvantaged, according to Douglas Driscoll, the CEO of real estate firm Starr Partners, who said the proposal would result in “short-term gain, for long-term pain”.
Instead of fronting the industry standard 20 per cent deposit, eligible borrowers will be able to get into the market with just 5 per cent, which Mr Driscoll said will present a problem for many borrowers.
“Although it makes it easier to buy now, it also potentially burdens [buyers] with larger monthly repayments and the prospect of having to pay thousands more in interest to the bank over the lifecycle of a loan.”
The Grattan Institute’s Brendan Coates has said in its current form the scheme will be ineffective, and if widened, would hurt first home buyers.
“In terms of impact, assuming that every one of those 10,000 people would not have purchased a house otherwise, after a decade you could see home ownership become 1 per cent higher,” he told The New Daily.
“But the risk is [this policy will be expanded to] more than 10,000 people and then it will push up prices and that will make affordability worse.”
To keep the Australian dream of home ownership alive, those in the industry are calling for three things – more supply, easier access to credit and a federal minister for housing.
“We’re predicting that in 40 years time only half of the 65-year-olds will own home,” Mr Coates said.
“Is this kind of Australia we want to leave?”
For housing to become more affordable, Mr Coates said, “prices have to fall”, and the main lever for achieving that practically is to increase supply.
“That’s the only way you’ll see home buyers win,” he said.
However, planning rules in major cities currently act as a constraint on housing supply, and Mr Coates said these restrictions need to be reviewed.
“The Commonwealth can make an agreement to offer up a bunch of cash to encourage premiers to make politically difficult reforms, and if the states create the amount [of reform] needed, they get the money.”
It’s a politically charged situation, not least because local councils don’t want cheap apartments being built in their areas, meaning the issue of apartment quality is of vital importance, said Mr Coates.
“One of the reasons people say no [to apartments] is that they don’t trust they’ll be built well,” he said.
“There’s a genuine problem in what’s built isn’t of great quality, so you probably need to change planning rules to account for that.
“There’s a reason why we haven’t make much progress – and you thought negative gearing was controversial!”
A minister for housing
There are mounting calls for a dedicated housing portfolio.
“One of the things we’ve called for is the federal government having a dedicated housing minister,” LJ Hooker head of research Mathew Tiller told The New Daily.
“What really is needed is a ‘holistic’ housing policy. ‘Holistic’ in terms of federal, state, and local governments working together to implement a policy so we’re not putting people into areas where there are no services.
“Also in terms of supply and infrastructure, that assists in making housing affordable for all buyers, not just one subset buyer type.”
Easy access to credit
On Tuesday, the Australian Prudential Regulation Authority (APRA) flagged that they would potentially lower the interest rate serviceability buffer form 7 per cent to a level determined by banks.
The buffer means applicants currently have to show they can pay off a mortgage with a 7 per cent interests rate despite most being at least three points below that.
APRA’s announcement was met by a fanfare from leading economists, agents and affordability advocates.
“More access to credit for people who can afford to pay it will have a positive impact,” Australian Council of Social Services principal Peter Davidson said.
Mr Davidson said prices increased so greatly during the past seven to eight years that more appropriate lending guidance – like that proposed by APRA – will be a huge help to buyers.