How does an economist view Labor Party housing plans?

Federal elections on Saturday (May 21) brought a new government, with the Albanian-led Labor Party winning power over the Coalition, prompting a series of political changes.

The new government is set to implement a series of initiatives aimed at addressing key issues facing the Australian property market, including housing affordability and availability.

The “Help to purchase” The program, the government’s main initiative, is one that CoreLogic’s research director, Tim Lawless, expects to be popular with future owners.

According to Lawless, this is due to the program’s ability to provide low- and middle-income people with a more affordable entry into the real estate market, paving the way for greater equality in homeownership while simultaneously creating more opportunities for workers to live in more central locations.

“Being able to share up to 40% of the purchase price with the government, with just a small deposit and the ability to save on mortgage insurance from lenders, helps overcome many of the barriers to home ownership” , did he declare.

“Keeping in mind that buyers will always have to finance their transaction costs, including stamp duties, legal fees and bank charges.”

The ‘Purchasing Assistance’ program will see the newly elected federal government help up to 40% of the price of a new home or 30% for an established residence, with potential buyers covering the remaining costs, which may include a deposit. as low as 2 percent.

A total of 10,000 spaces will be available to homeowners under the program starting July 1, 2022, with earnings capped at $90,000 for individuals and $120,000 for couples. Price caps for qualifying properties range from $400,000 to $950,000 depending on the region of purchase.

Lawless notes that rising construction costs, resulting construction constraints and uncertainty surrounding interest rate hikes could hamper the uptake of new homes under the program.

“That said, a higher interest rate environment, which could lead to lower prices, could make people more cautious about buying, reducing demand for the program in the near term,” he said. .

“Historically, residential transaction activity has correlated with house price movements. Additionally, we’ve just been through a period of significantly high transaction activity, including from the first cohort of homebuyers, where many homebuying decisions were likely advanced to take advantage of the wide range home buying grants and incentives in 2020 and 2021.

Lawless cautions buyers considering using the program to consider the risks associated with buying a home with a small deposit.

“With the housing market likely heading for a downturn over the next few years, some buyers may find their home is worth less than the debt it holds,” he said.

“It is important to know whether the government will share the downside risk if the property is sold with a negative equity position.”

He points to the KeyStart Loans program currently in place in Western Australia for buyers looking to preview the results of a shared equity program in a declining market. According to data made available by the Government of Western Australia, the number of defaults on KeyStart loans increased from 0.92% to 1.21% between January 2017 and September 2019.

However, it is important to remember that this number remains relatively low and that the program has had a positive impact on thousands of lives by enabling them to access property.

On another note, Mr Lawless praised the Help to Buy scheme for its potential to help thousands of Australians gain access to home ownership, while stressing that the scheme does not solve problems under underpinnings of home ownership, admitting that it emphasizes ownership. ownership rather than putting downward pressure on house prices.

Even so: “It should also be considered that any demand-side incentives can add upward pressure on house prices. For this reason, the limited number of places in this particular program, as well as price and income caps, should help contain some of the excess demand that could lead to upward pressure on prices,” he said. -he declares.

The new Labor government has also promised several other programs to support Australia’s housing sector. This includes the Regional First Home Buyer Support Scheme, which from January 2023 will see the government provide a deposit guarantee to regional home buyers with a down payment of at least 5%.

Like the ‘Help to Buy’ scheme, it will be available to 10,000 homeowner buyers who have never owned a property and who have lived in their selected area for at least a year, with income capped at 125,000 $ for individuals and $200,000 for couples. Property price caps, which are subject to review every six months, vary by region but range from $350,000 to $800,000.

Anthony Albanese’s party also aims to establish a National Housing Supply and Affordability Council, which will aim to:

  • Take leadership roles in setting land supply targets in consultation with state and territory governments.
  • Establish a housing data warehouse focused on housing supply, demand and affordability.
  • Advice on urban planning policies and land supply.
  • Report on the release of government-owned land, affordability of rents, homelessness and the number of new social and affordable housing units built each year.
  • Advise on appropriate housing measures in all current and future municipal and regional transactions.