03 February 2013

Tough Love required to increase the supply of housing and meet expected demand....seven (7) key policy reforms to improve the functioning of the housing market

Value of First Home buyer Grants & Negative Gearing

FHB Grants began in the 1960s and have been cancelled and then re-introduced a number of times ever since.

Governments have spent a total of around $22.5 billion in grants in 2010-11 values over the past 50 years, yet homeownership rates have not increased over this period. They provide minimal benefit to FHBs, acting to inflate values for the benefit of vendors. In this regard, they appear to have been a massive failure, although the recent shift towards newly constructed dwellings in Tasmania is a significant policy improvement.

Australia possibly needs a switch from our current government policy positions to inflate the demand for housing and restrict supply, to policies which actually boost the supply of housing to meet underlying increasing demand.

  • First, the abolition of all existing policies which serve only to increase the prices of existing dwellings, such as cash grants to and stamp duty exemptions for first time buyers...redirect these grants and exemptions to new [to be constructed] dwellings only;
  • Second, the redirection of the billions of government funds thereby saved (and/or the additional revenue raised) towards programs that increase the supply of housing – for example, by directly funding the construction of new dwellings (as the Rudd Government did as part of its response to the global financial crisis), or by providing some combination of grants, loans or tax incentives to induce private sector developers to increase the proportion of ‘affordable’ dwellings within their developments, whether for sale or rental;
  • Third, expanding or replicating programs like Western Australia’s ‘Keystart’ scheme which assist eligible people to become home owners on a ‘shared equity’ basis, with eligibility being subject to a means test, and which creates a ‘revolving fund’ as the ‘shared equity’ is returned to the State Government upon sale;
  • Fourth, changes to the way in which State and Territory Governments tax holdings of and transactions in land, with a view to encouraging more efficient use of it. That would include replacing stamp duty on land transfers (which are ‘bad’ taxes on many grounds, including that they discourage people from changing their dwellings as their needs change) with more broadly-based land taxes (i.e. no exemptions for owner-occupiers, but with appropriate transitional provisions) and possibly higher rates for undeveloped vacant land in established urban areas;
  • Fifth, taking a more ‘holistic’ view of urban infrastructure investment, by recognizing that it has an important housing dimension – that is, that public (or private) investment in transport infrastructure (both public transport and roads) can make a tangible contribution towards improving housing supply and affordability by making ‘greenfields’ developments more accessible to both buyers and renters – and considering funding such infrastructure by levies on the increments to the value of the land which result from such investments (as for example with the levy that funded the Melbourne Underground Rail Loop Authority in the 1970s and early 1980s);
  • Sixth, revisiting current models for financing the provision of infrastructure and services in ‘greenfields’ housing estates with a view to reducing the extent to which these are funded by ‘upfront’ charges (something which could be assisted by changes to the land tax regime which I mentioned a moment ago); and
  • Seventh, reducing the cost, complexity and regulatory uncertainty associated with ‘brownfields’ and ‘infill’ developments in established areas – which doesn’t have to mean traducing the property rights of other property owners, but which should mean clearer and more uniform planning rules, with fewer opportunities for frivolous or vexatious objections and appeals and removing “gold plating” local council and planning standards unnecessarily adding thousands to the cost of housing for our young.




... That's Lending

Best regards,
Paul Wells, Chief Investment Officer
La Trobe Financial Asset Management Limited



La Trobe Financial is one of Australia's leading independent credit specialist Fund Managers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 123 staff and has managed over AUD$10Billion covering over 100,000 investment grade assets since inception in 1952.

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