The impact of housing measures

Budget Review 2022–23 Index

Elliott King and Dr Matthew Thomas

Housing affordability in Australia has been generally declining for some time. These issues are not confined to the major cities as the recent inquiry report from the House Select Committee on Regional Australia highlighted. Australians living in some areas outside the major cities have seen significant house price increases relative to the incomes of existing residents (pp. 50–51).

Similar problems were identified by the House Standing Committee on Tax and Revenue, which noted that access to affordable housing in regional communities has worsened during the Covid-19 pandemic as a result of migration away from capital cities (pp. 3 & 18). It is likely that regional housing affordability problems will be exacerbated in regions affected by recent natural disasters.

In a pre-Budget announcement, the Treasurer detailed housing affordability measures to be included in the 2022–23 Budget to address challenges emerging from increasingly unaffordable rents and home prices. The measures announced include an expansion of the existing Home Guarantee Scheme’s ‘First Home Loan Deposit Scheme’ (to be renamed the ‘First Home Guarantee’), increasing the volume of guarantees made per year and adding a new sub-program for buyers in regional areas (Budget measures: budget paper no.2: 2022–23, p. 170).

In a Budget night media release, the Government announced its intention to legislate amendments to the National Housing Finance and Investment Corporation Investment Mandate Direction 2018 (Investment Mandate) as part of its response to the Review of the National Housing Finance and Investment Corporation Act 2018 (NHFIC Act) and to increase the National Housing and Finance Investment Corporation’s (NHFIC) guaranteed liability cap by $2 billion to facilitate increased lending through the Affordable Housing Bond Aggregator (AHBA).

Combined, these measures intend to make first home purchases more accessible for certain households and increase the stock of social and affordable housing.

The Home Guarantee Scheme

Originally announced during the 2019 election campaign, the ‘First Home Loan Deposit Scheme’ (FHLDS) was introduced in October 2019 following amendments to the NHFIC Act to permit the NHFIC to provide loan guarantees. The FHLDS would support up to 10,000 eligible first home buyers by providing a guarantee on eligible loans equal to the difference between a deposit of at least 5% and 20% of the property purchase price. This would mean an eligible borrower would no longer have to pay lenders mortgage insurance as the NHFIC guarantee would raise their deposit to the requisite 20%.

Changes to the Investment Mandate in October 2020 extended the FHLDS to include an additional 10,000 places for purchasers of newly built dwellings (the ‘New Home Guarantee’) as part of the JobMaker package (Budget measures: budget paper no. 2: 2020–21, p. 161). Amendments to the NHFIC Act following the 2021–22 Budget (Budget measures: budget paper no. 2: 2021–22, p. 188) introduced the ‘Family Home Guarantee’. These two programs operate similarly to the FHLDS but target specific groups. The ‘Regional Home Guarantee’, announced in the 2022–23 Budget, is expected to operate similarly (Budget paper no.2, p. 170).

These support schemes are in addition to NHFIC assistance available through the First Home Super Saver Scheme (FHSSS). The FHSSS assists first home buyers to build a deposit inside their superannuation to save for a first home.

Commonwealth home purchase assistance eligibility

The FHLDS provides a loan guarantee to first home buyers who have less than the 20% deposit requirement to purchase a dwelling. To be eligible the buyer must have at least 5% of a deposit and be purchasing a dwelling within NHFIC’s price caps. The guarantee is accessed through a participating lender. The Budget announced that the number of guarantees available per financial year will be increased from 10,000 to 35,000 per year (Budget paper no.2, p. 170).

The New Home Guarantee (NHG) is the FHLDS with additional criteria that the dwelling purchased is newly built, or soon to be built.

The Family Home Guarantee (FHG) is an extension of the FHLDS targeting single parents. The FHG minimum deposit is lower at 2% and requires participants to have at least one dependent child. Unlike the NHG and FHLDS, participants do not have to be a first homebuyer, but they must not currently own a property. The Budget announced the number of FHGs will increase to 15,000 per year until 30 June 2025.

Details for the Regional Home Guarantee (RHG) are yet to be announced, but the Minister’s media release and Budget paper no. 2 (p. 170) indicate this scheme will operate similarly to the FHLDS with a few notable changes:

  • an eligible dwelling must be purchased in a ‘regional location’
  • previous home owners may access the scheme provided they have not owned a home for at least 5 years prior to purchase
  • Australian citizens and permanent residents will be eligible.

Once the scheme becomes operational, 10,000 places will be available per financial year until the year ending 30 June 2025.

How will the scheme support home ownership?

These measures are aimed at improving house price affordability. However, it is unclear how likely they are to achieve this goal. UNSW housing specialist Nigel Stapledon has observed that the main drivers of Australia’s house prices:

… can historically be attributed to the significant tax advantages for property ownership and rigidities on the supply side, such as zoning and other regulatory constraints. In the past two years these factors have been supplemented by the potent combination of COVID-19 and low interest rates. [Emphasis added]

Increasing the number of potential buyers, with all else kept equal, will likely serve to bid-up prices in affected markets. It is unclear what the long-term effectiveness of the Home Guarantee Scheme will be on housing affordability.

Moreover, the effectiveness of these schemes at the individual level is contingent on the availability of housing within the price caps, incomes of buyers, and the stability of house prices.

Estimating the impact of different settings

To illustrate the impact on a household, 3 scenarios have been developed based on a 20%, 5%, or 2% deposit on a property priced at $700,000. Table 1 sets out the monthly repayments, total repayments, and interest on a 30-year loan using RateCity’s mortgage calculator. A fixed interest rate of 3.11% is assumed.

Table 1 Repayment totals on a $700,000 property by deposit size

Deposit % Deposit $ Mortgage Monthly repayments Total loan repayments Total interest repayments
20% $140,000 $560,000 $2,394 $861,959 $301,962
5% $35,000 $665,000 $2,843 $1,023,577 $358,579
2% $14,000 $686,000 $2,933 $1,055,091 $369,901

Source: Parliamentary Library calculations based on RateCity tools.

When comparing a buyer with a 20% deposit to one with a 5% or 2% deposit, the lower deposit means the buyer is servicing a larger mortgage and paying a much higher lifetime interest cost. The buyer with a 2% deposit in this scenario pays an extra $539 per month to service the loan compared to the 20% deposit buyer and pays an extra $223,132 over the life of the loan, of which $67,939 is extra interest.

Average incomes are an important consideration when assessing the impact of repayments of this size. The Women’s budget statement 2022–23 describes the ‘average income’ of successful FHG recipients as ‘just under $70,000’ (p. 56). Assuming this average income, and using the figures in Table 1, the repayments on a $700,000 property would be $2,933 per month with a 2% deposit, and would account for 50% of all income for someone on $70,000 per annum.

Other considerations

As the scenario demonstrates, the repayments on a $700,000 property can place average and below average income earners in housing stress—defined as paying more than 40% of their income in mortgage repayments—due to the larger repayments on a loan with a lower deposit. Moreover, highly leveraged individuals are more exposed to price falls and risk going into negative equity. Where participants are unable to meet their loan obligations, the Commonwealth covers lender’s loss up to the value of the guarantee, as discussed in Budget strategy and outlook: budget paper no. 1: 2022–23 (p. 267).

Additionally, the property price caps (PPC) do not reflect the median house price in their respective region. Tables 2 and 3 present a comparison of median house and unit prices to the PPC. Notably, the PPCs for the FHLDS and FHG are typically about 80% of the median house price, while the NHG PPC is about 88% of median house prices.

Table 2 NHG property price caps and median dwelling prices by region

Region NHG Price Cap* ($)   % of Median HOUSE Price (Feb-22) % of Median UNIT Price (Feb-22)
NSW - capital city, regional centres (Newcastle, Lake Macquarie & Illawarra)   $950,000   71.97 122.6
NSW – other   $600,000   83.33 105.8
VIC – capital city, regional centre (Geelong)   $850,000   91.40 132.8
VIC – other   $550,000   90.91 134.1
QLD – capital city, regional centres (Gold Coast & Sunshine Coast)   $650,000   89.04 142.2
QLD – other   $500,000   95.24 104.8
WA – capital city   $550,000   105.16 138.2
WA – other   $400,000   96.39 133.3
SA – capital city   $550,000   85.80 139.2
SA – other   $400,000   117.65 170.2
TAS – capital city   $550,000   71.43 95.4
TAS – other   $400,000   75.37 104.4
ACT   $600,000   55.50 102.0
Northern Territory   $550,000   98.65 148.6

Source: NHFIC, ‘Support to buy a home: Property price caps’, NHFIC website; CoreLogic, Median price report, February 2022. Percentages are Parliamentary Library calculations.

Note: *Effective 6 October 2020. Table excludes the categories ‘Jervis Bay Territory & Norfolk Island’ and ‘Christmas Island & Cocos (Keeling) Island’ due to insufficient data.

Table 3 Property price caps and median dwelling prices by region

Region   FHLDS and FHG Price Cap* ($)   % of Median HOUSE Price (Feb-22) % of Median UNIT Price (Feb-22)
NSW - capital city, regional centres (Newcastle, Lake Macquarie & Illawarra)   $800,000    60.61 103.23
NSW – other   $600,000    83.33 105.82
VIC – capital city, regional centre (Geelong)   $700,000    75.27 109.38
VIC – other   $500,000    82.64 121.95
QLD – capital city, regional centres (Gold Coast & Sunshine Coast)   $600,000    82.19 131.22
QLD – other   $450,000    85.71 94.34
WA – capital city   $500,000    95.60 125.63
WA – other   $400,000    96.39 133.33
SA – capital city   $500,000    78.00 126.58
SA – other   $350,000    102.94 148.94
TAS – capital city   $500,000    64.94 86.69
TAS – other   $400,000    75.37 104.44
ACT   $500,000    46.25 84.96
Northern Territory   $500,000    89.69 135.14

Source: NHFIC, ‘Support to buy a home: Property price caps’, NHFIC website; CoreLogic, Median price report, February 2022. Percentages are Parliamentary Library calculations.

Note: *Effective 1 July 2021. Table excludes the categories ‘Jervis Bay Territory & Norfolk Island’ and ‘Christmas Island & Cocos (Keeling) Island’ due to insufficient data.

Increasing the Affordable Housing Bond Aggregator liability cap

The Budget will increase the guaranteed liability cap of the NHFIC by $2 billion to $5.5 billion (Budget paper no. 2, p. 170). This is with a view to enabling the NHFIC ‘to support increased loans through the AHBA.

The budgetary impact of this measure will not appear in the Budget’s expense or payments tables as the supports provided by the NHFIC are recorded as balance sheet items in the Government’s financial statements (Budget paper no. 1, p. 159). They also do not appear in the Treasury Portfolio Budget Statement as the costs of NHFIC’s guarantees ‘are not directly appropriated by government’ (Portfolio budget statements 2022–23: budget related paper no. 1.13: Treasury portfolio, p. 5).

The measure builds on a 2021–22 MYEFO measure that increased the cap on NHFIC liabilities by $500 million (p. 301). This increase was announced to support the delivery of additional affordable housing dwellings and ‘extend the end date of the Commonwealth guarantee of NHFIC’s total liabilities from 30 June 2023 to 30 June 2028 to facilitate the continuation of the [AHBA]’.

The AHBA provides lower cost and longer tenor loans to registered community housing providers by aggregating their lending requirements and issuing bonds to institutional investors. Ideally, this enables the delivery of additional social and affordable housing by these providers. Social and affordable housing is provided by the government and community sector to assist people who are unable to afford or access suitable accommodation in the private rental market.

According to the NHFIC’s 2020–21 Annual Report, the Corporation approved $1.1 billion of AHBA loans in 2020–21, and, as at 30 June 2021, the AHBA loan portfolio was ‘supporting the delivery of 4,675 new and 8,394 existing dwellings’ (p. 17).

Impact on unmet need

While the increase in dwellings is not insignificant, it does not go terribly far towards meeting current unmet need or future projected need for social housing.

Australia’s overall social housing stock (which includes public housing, community housing, state-owned and managed Indigenous housing and Indigenous community housing) has increased in recent years and will increase further because of some states’ post-COVID-19 housing construction programs. Housing experts from the UNSW City Futures Research Centre have estimated that these programs will result in an additional 23,000 public and community housing dwellings over the 3 years from 2021–22.

However, changes in social housing stock have not kept pace with growth in the overall number of households in Australia and do not address current or forecast need.

According to analysis conducted by housing researcher Hal Pawson, from 2011 to 2020 Australia’s social housing stock grew by 2%, compared with national population growth of 15%. Library analysis of ABS’s Building Approvals data and stock of residential dwellings in Australia indicates that over the same period the average annual growth rate for new residential dwelling construction was 3%, while the stock of residential dwellings grew by 17%. If the need for social housing has remained at a steady per capita level, social housing growth has failed to keep pace with general growth trends.

Housing needs assessments typically focus on 3 different categories. The first is ‘manifest need’ which refers to homeless populations; the second is ‘expressed need’ which refers to social housing waiting list statistics; and the third is ‘evident need’, which refers to people who have housing needs that are unmet by the market, but who do not fall within the previous 2 categories.

According to Productivity Commission figures, as at 30 June 2021 there were 163,508 households across Australia on waiting lists for social housing (this figure could be an overestimate as some applicants may be on more than one waiting list). Based on calculations of homeless Australians (manifest need) and non-student, private rental, low-income households who are experiencing housing stress (evident need), housing experts have estimated current unmet social housing need at over 430,000 dwellings.

While many housing experts welcomed the establishment of the AHBA, some have observed that ‘further steps are required than more efficient finance to deliver social housing outcomes’ (p. 8). Chiefly, these involve closing the financing gap—that is, the difference between the cost of delivering new affordable housing and the income received from concessional rents from low-income earners.

If the gap is to be closed, Hal Pawson has argued this will require Commonwealth intervention, over and above funding for social and affordable housing provided to the states through the National Housing and Homelessness Agreement and indirectly through Commonwealth Rent Assistance:

Through its tax, borrowing and currency-issuing powers, it is the Commonwealth government, not the states, that holds the real financial firepower in Australia. Shifting prime responsibility for funding social housing growth to the states is untenable. A sustained national construction revival is only possible if the federal government resumes its historic role as the main source of investment for additional affordable homes.


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