John Flavell: how the Government can solve affordability

Mortgage Choice's CEO outlines how next week's Budget could help first home buyers, without changing negative gearing

The Government has actively spoken about the ongoing issue of housing affordability in a lot of public forums. But while there is a lot of talk, there is next to no action.  

In recent weeks, we have heard whispers that the Turnbull Government may unveil a series of tax breaks for first home buyers during the May Federal Budget. 

It is reported that these ‘tax breaks’ will allow first home buyers to direct some of their pre-tax income into a savings account – similar to salary sacrificing.

At Mortgage Choice, we believe anything that can be done to help first home buyers achieve their property dreams should be welcomed. 

That said, any initiatives need to be well-thought out and well-executed. In the past, we have seen various initiatives fall flat, simply because the barriers to entry were too high, or the rules surrounding them were too complex. 

Take the 2008 First Home Savers Account for example. While good in theory, the scheme didn’t hit the mark when put into practice. Unfortunately, the original First Home Savers Account had a lot of restrictions. Account holders were forced to contribute at least $1,000 per year to their account in at least four financial years.
As a result, only first home buyers who actively started their savings plan long before they wished to buy, could actually take advantage of the account.

If we want to truly address the housing affordability crisis, we need initiatives that actually work, and we need to stop spending all our time complaining about tax breaks that are already in place – like negative gearing and capital gains tax concessions. 

Every time there is a Federal Election or Budget, ‘negative gearing’ gets a lot of air time. 

Most people are (wrongly) under the assumption that negative gearing serves one purpose – to help the high-end, wealthy investors become even wealthier. This is simply not the case. 

In the past and in the absence of direct access to affordable housing, negative gearing has provided first time buyers and mum and dad investors with an incentive to invest in property by way of various tax concessions. 

These tax concessions haven’t just given potential investors a reason to buy property, but they have effectively helped put more rental properties on the market, resulting in lower rents. 

If we start contemplating making changes to the current taxation regime, you need to be prepared for the widespread consequences this will have. 

What we need both sides of Government to do is introduce real structural change across the country. 

We need to see further opportunities for employment in regional areas. We need better infrastructure to enable a faster connection between our suburban/regional areas and our urban centres. We need to see continued development within the urban areas.  

The Government needs to stop treating the housing affordability crisis with band-aids and start looking for a cure. 

That said, perhaps housing affordability is destined to be one of those incurable illnesses – a bit like the common cold. And just like the common cold, there is no magical cure for housing affordability. Perhaps we are destined to continue to treat the symptoms of housing affordability in perpetuity. 

John Flavell is CEO of Mortgage Choice and a frequent commentator on issues facing first home buyers and affordability. He previously headed up wealth advice and formely broker distribution at NAB.


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