5.1
As outlined in Chapter 2 there are multiple metrics by which market housing affordability could be measured, including the ability to purchase a first home. Many witnesses and submitters identified first home buyers’ ability (or rather, inability) to save for a housing deposit as a key barrier to home ownership.
5.2
The Reserve Bank of Australia (RBA) explained that low interest rates indirectly increase the size of housing deposit first home buyers need:
While lower interest rates increase affordability for existing home owners, this effect is at least partly offset for those trying to purchase a property for the first time. This is because lower interest rates increase capacity to borrow and pay for housing for both current owners and potential first-time buyers. Housing prices therefore tend to bid up, which increases the size of the deposit first home buyers must accumulate and/or reduces the size/quality of the property they can purchase.
The RBA additionally noted that relatively low income growth over the past decade has contributed to the challenge of saving a first home deposit.
5.3
Domain observed that the combined factors of fast-growing property prices, low wage growth, increasing living costs and weak saving rates make it difficult for first home buyers to save a deposit. In its submission, Domain cited key findings from its annual Domain First Home Buyer 2021 Report, including that:
The timeline for first home buyers in most Australian capital cities to save a house deposit is increasing, with it taking between two to nine months longer to save a deposit in 2021 than in 2020;
It typically takes seven years and one month for a couple, with both partners working full-time, to save for an entry-priced house deposit in Sydney; and
Specifically for units, the time it takes to save for a deposit has decreased in Sydney and Melbourne, and remained the same in Brisbane, Adelaide, and Canberra.
5.4
The RBA used data from the Australian Bureau of Statistics to show that the average time it takes to save a home deposit has increased overall for most capital cities over the past 20 years (see Figure 5.1).
First home buyer grants and concessions
Overview of key government support programs
5.5
In response to the deposit barrier facing many first home buyers, the Australian and state and territory governments have implemented policies to support first home buyers to purchase a property. These policies take different forms including cash grants, guaranteeing part of the loan to enable purchases with a significantly lower deposit, and stamp duty concession schemes where stamp duty tax is waived for first home buyers in certain circumstances. Overall, these policies aim to help first home buyers by reducing the cash needed upfront to purchase a home. As there are many policies supporting first home buyers, this report provides a brief overview of key schemes only.
5.6
The national programs to support first home buyers include the First Home Loan Deposit Scheme, the New Home Guarantee, the Family Home Guarantee, the First Home Super Saver Scheme, and the HomeBuilder grant. Each of these schemes is briefly outlined below.
5.7
The First Home Loan Deposit Scheme allows first home buyers with less than a 20 per cent deposit to avoid paying lenders mortgage insurance when purchasing a new or existing home. Under the scheme, the National Housing Finance and Investment Corporation (NHFIC) guarantees the participating lender up to 15 per cent of the value of the property purchased. Eligibility criteria apply, and there are maximum caps for each state and territory on the value of the property that can be purchased through the scheme. The scheme supports a maximum of 10,000 guaranteed loans per financial year. The New Home Guarantee provides additional places under the First Home Loan Deposit Scheme specifically for eligible first home buyers building or purchasing new homes.
5.8
The Family Home Guarantee specifically targets single parents with at least one dependent child (including but not limited to first home buyers) to purchase a new home or existing home with a deposit as low as 2 per cent. NHFIC guarantees to a participating lender up to 18 per cent of the value of the property, allowing the purchaser to avoid paying lenders mortgage insurance.
5.9
The First Home Super Saver Scheme allows first home buyers to save for a first home deposit using their superannuation (hereafter referred to as super) fund, and thus benefit from the concessional tax treatment of super. Once again, there are eligibility criteria to participate in the scheme, and there is a maximum cap of $30,000 of eligible contributions that can be released.
5.10
The HomeBuilder program provides eligible owner-occupiers, including but not limited to first home buyers, with a grant to either build a new home or substantially renovate an existing home. The HomeBuilder scheme is part of the Australian Government’s economic response to COVID-19, and seeks to support the residential construction industry by encouraging new builds and renovations. Eligibility criteria apply and there are maximum caps on the value of the property being built, or the property prior to renovation.
5.11
In addition to the preceding first home buyer support schemes administered by the Australian Government, the First Home Owner Grant (FHOG) scheme was introduced in 2000 to offset the effect of the Goods and Services Tax (GST) on home ownership. The FHOG is a national scheme funded and administered by the state and territory governments, which provides a one-off grant to first home owners that satisfy eligibility criteria.
Views on first home buyer grants and concessions
5.12
Many submitters argued against financial support for first home buyers on the basis that it worsens housing affordability. For instance, Raine & Horne Group reported that its real estate agents had provided feedback which indicated:
…that schemes such as HomeBuilder and other government supports have played a part in propelling transactional activity and price inflation, mainly as there is limited capacity to augment supply in response to increasing buyer demand.
5.13
Mr Saul Eslake, economist and the Principal of Corinna Economic Advisory echoed this view and stated that:
Generous cash grants and tax breaks for first-time buyers ‘brought forward’ demand, funnelling it into a relatively short period and allowing those who were able to get to the front of the ‘queue’ to pay more for the homes they bought than they otherwise would – the value ending up in the pockets of vendors or the profit margins of builders and developers. Strongly rising prices then attracted the attention of investors, who could then capitalize on the eagerness of the banks and others to lend at record-low interest rates.
5.14
Mr Eslake observed that since 2000, the FHOG has been twice ‘temporarily increased in response to an actual or feared slump in housing activity (and in 2008, in response to a feared decline in house prices)’. He further noted that significant government funds are being spent on first home buyer support policies, referencing that following the onset of COVID-19:
State Governments committed at least $2 billion over two years, and the Federal Government $680 million, to expanded schemes of cash grants or stamp duty concessions to first time buyers.’
5.15
The Shop, Distributive and Allied Employees’ Association (SDA) also critiqued first home buyer support programs, and commented:
…the government is paying money to people who will enter the market anyhow, with the possible exception of the recently established Family Home Guarantee…’
5.16
Researcher Mr Ben Cameron explained that first home buyer programs enable first home owners to capitalise on low interest rates and enter the housing market, ‘rather than be trapped in long-term renting’. Mr Cameron further outlined that:
They [incentives and subsidies for first home buyers] also bring forward the savings period required for a home deposit and without these measures ownership inequality in Australia could have widened further.
At the same time, Mr Cameron recognised that ‘while incentives and subsidies help and can reduce inequality… for home ownership, they only benefit those on high incomes.’
5.17
Relevant to wealth equality, Mr Eslake argued that rather than improving general housing affordability, policies to assist first home buyers (and negative gearing, which is discussed in Chapter 4) in fact ‘exacerbate inequities in the distribution of income and wealth’.
5.18
Some submitters took a different view and advocated for certain Australian Government schemes supporting first home buyers to be continued and expanded, including the First Home Loan Deposit Scheme and First Home Super Saver Scheme.
5.19
The Real Estate Australia (REA) Group advocated for expanding the First Home Loan Deposit Scheme, and submitted that ‘…expanding the scheme to more first home buyers would have a significant impact on home ownership rates.’ The REA Group also highlighted the Family Home Guarantee scheme, which it described as ‘an innovative policy that gives a pathway for people who may otherwise be unable to take part in the market’, and provided support for its expansion.
5.20
The Urban Development Institute of Australia (UDIA) recommended that the Australian Government ‘make permanent the annual allocation of 10,000 places available under the First Home Loan Deposit scheme exclusively for the purchase of new homes or newly constructed homes’ and suggested that doing so would help ensure ‘a sustainable pipeline of new supply to meet long-term demand forecasts.’
5.21
The Committee also heard from Dr Murray that:
Although they are not recommended as programs to create cheaper housing, subsidies such as first home buyer grants, if enacted, should also apply to newly constructed dwellings only.
Superannuation as a tool to support first home buyers
5.22
One potential policy that was discussed throughout the inquiry was allowing first home buyers to withdraw their super or use it as collateral to assist with a housing deposit.
5.23
In most cases, Australians can access their super when they:
reach their ‘preservation age’ (which is set under regulations and depends upon the year they were born) and retire
reach their preservation age and elect to begin a transition to a retirement income stream while continuing to work; or
are 65 years old, regardless of whether they have retired.
5.24
Individuals are only able to access their super early in limited circumstances, including due to experiencing severe financial hardship, having a terminal medical condition, and being unable to work due to temporary or permanent incapacity. Additionally, in response to COVID-19 the Australian Government allowed eligible individuals financially impacted by the pandemic to apply to access a maximum of $20,000 of their super between 1 July 2019 and 31 December 2020.
5.25
It is important to distinguish the First Home Super Saver Scheme from any proposal to allow first home buyers early access to, or the ability to borrow against their super to purchase a home. As outlined previously, this current scheme allows individuals to essentially use their super as a savings account and make voluntary contributions into it, which then benefit from tax concessions. Individuals participating in the First Home Super Saver Scheme can subsequently apply to have their voluntary contributions and associated earnings released.
5.26
Multiple witnesses and submitters argued against allowing people access to super to purchase a first home on the basis that this would increase demand and the additional funds would be factored into sale prices, thus driving up property prices. Dr Luci Ellis, Assistant Governor of the RBA predicted that if super ‘were to be redirected to spending more on housing, the result would be that people would spend more on housing.’
5.27
Some submitters informed the Committee that allowing access to super to purchase a first home would increase house prices in the same way as other government programs aiming to support first home buyers, including first homeowner grants. Mr Adrian Pisarski, Executive Officer of National Shelter commented that this ‘might help some individuals to get there, but overall it will have a detrimental effect on first homeownership’.
5.28
Industry Super Australia echoed this view and reported that:
Encouraging first home buyers to raid their super for housing deposits could see median prices in the five biggest cities increase by between 8 and 16 per cent’.
5.29
Others emphasised the need for caution in allowing first home buyers to access their super, given the potential adverse impact on those individuals in retirement. Mr Michael Lawrence, Chief Executive Officer of the Customer Owned Banking Association (COBA), noted that super is liquid, and while real estate is an asset, ‘…you can’t eat your asset.’
5.30
In addition to recognising the importance of super as a source of income in retirement, COBA noted that for people retiring with debt, it is one revenue source to pay it.
5.31
Industry Super Australia raised other consequences of allowing first home buyers access to super, stating that:
… ‘super for a house’ will impose extra costs in lost super, lost income and additional Pension expenditures – likely leading to higher taxes to help fund the retirement income system than would otherwise be the case.
5.32
As the Age Pension is paid to people who meet eligibility requirements and subject to a means test (assets test and income test), a lower super balance would increase Age Pension payments for some individuals. Industry Super Australia undertook modelling which found that for every $1 withdrawn early from super, taxpayers would need to contribute up to $2.50 extra via the Age Pension – although this amount reduces with the age of the individual and their proximity to retirement. Hence, Industry Super Australia argued that while allowing first home buyers access to super may seem like an attractive mechanism to help first home buyers without running up any immediate government expense:
…this discounts the fact that withdrawing money from super accounts will mean lower balances at retirement and increased reliance on the taxpayer-funded Age Pension to support retirement living standards.
5.33
The SDA told the Committee that allowing access to super would ‘deplete Australia’s national savings and the retirement savings of individuals’, and do:
…nothing to address the core reason Australians, especially young Australians, struggle to enter the property market: weak wages growth and insecure work which prevents them from saving for a deposit or securing a mortgage, and investor-dominance of the market through various tax concessions and demand-induced subsides.
5.34
In relation to the Australian Government’s COVID-19 early release of super policy, the SDA noted that:
Almost $3 billion [has] come out of the accounts of those aged under 30.
…
The single largest age group to access their super early were those aged between 26 and 30, people we would assume to be the next generation of prospective first homebuyers.
Thus, the SDA argued many younger Australians would not have super balances to draw upon for a housing deposit, should such a policy be enacted.
5.35
Should any access to super proposal be explored, the SDA recommended that policymakers consider potential gender imbalances, noting that ‘women currently retire with 47% less super than men despite women living five years longer than men on average.’
Committee comment
5.36
The Committee acknowledges that saving a housing deposit is a significant hurdle for those attempting to enter home ownership. The Committee considers that the utility or performance of first home buyer support schemes depends upon the specific policy objectives. The evidence indicates that first home owner grants and concessions reflect governments’ prioritisation of the cohort of first home buyers over other groups. The Committee acknowledges that unless first home buyer support programs are accompanied by increased housing supply entering the market, such policies usually lead to an increase in property prices. Similarly, the Committee recognises that allowing first home buyers to access or borrow against part of their super to purchase a home would, in the absence of increased housing supply, likely increase demand and lead to higher property prices.
5.37
The Committee is aware that super balances are a significant asset, and that super plays a critical role in retirement. The Committee also understands the importance of secure housing in retirement, and indeed throughout a person’s life, and appreciates that home ownership can provide this security. The Committee notes the decision by the Australian Government to allow individuals experiencing financial hardship due to the COVID-19 pandemic to make withdrawals from their super.
5.38
The Committee is of the view that first home buyers should be able to use their super as collateral for a housing loan given that paying off a mortgage is a very common way of saving for retirement. This would reduce the deposit needed to enter the housing market and have a similar effect to allowing access to super. However, in contrast to allowing access to super, under this approach super balances would only be reduced if the first home buyer defaulted on their home loan, which is an unexpected and infrequent occurrence in Australia. This approach should limit negative impacts on younger Australians and women.
5.39
The Committee recommends that the Australian Government allow first home buyers to use their superannuation assets as security for home loans.
5.40
The Committee recommends that the Australian Government develop and implement policy allowing first home buyers to use their superannuation balance as collateral for a home, without using the funds themselves as a deposit, thereby expanding the opportunity for home buyers.
5.41
Implementation of this policy should depend on also implementing policies to increase the supply of housing (such as Recommendation 2). Otherwise, an increase in households’ ability to borrow would likely increase property prices. This recommendation will therefore remove the largest barrier for home buyers; being the deposit.