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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