Labor Senators of the committee support the objectives of the bill and the new scheme it implements—the First Home Loan Deposit Scheme. The opportunity to hear from a number of different stakeholders through public hearings and written submissions allowed members to understand different perspectives about how the new scheme would be implemented and its impact. While Labor members of the committee believe that the scheme has significant merit there are a number of issues which should be noted.
Concern that no new first home buyers will enter the market
The first of these is that some stakeholders were concerned that the scheme would not result in an increase in the number of first home buyers. Many stakeholders noted that the scheme would likely result in first home buyers buying property sooner than they otherwise would have, but were not as encouraging that the number of first home buyers would rise as a result of the scheme. This was supported by Mr O'Shaughnessy from the Australian Banking Association:
I actually think there will initially be a slight bump in numbers, but, given the cap of 10,000, it will perhaps bring forward a number of potential borrowers who now qualify, where this product is suitable for them. That would be early in the first year of operation, and then I think it would very much settle. I don't think it will have a significant distortive impact on the market.
The Grattan Institute’s evidence supported this view:
It is unlikely to make much of a difference to homeownership rates for young Australians or house prices. Most of those taking up the scheme will probably have bought a house anyway.
This is further supported by Dr Fotheringham of the Australian Housing and Urban Research Institute:
As currently written, I think it will help accelerate people to homeownership rather than get to homeownership people who would not otherwise.
While enabling people to buy their first home sooner is a positive outcome it would be more beneficial to increase the number of first home buyers. In this regard the subsequent detail and implementation of the scheme must ensure that this legislation results in additional first home buyers entering the market.
Lack of detail
The second issue which was raised throughout this inquiry is that very little information was made available to the committee as to how this scheme will eventually be implemented. The legislation, which the committee examined, gives NHIFIC the power to underwrite loans and conduct additional housing affordability research.
Lenders mortgage insurance provider Genworth explains:
The terms of the Scheme are to be determined by NHFIC under an investment mandate. Without certainty around the 10,000 loan cap, the eligibility criteria, the guarantee termination events, and regional price caps, the potential exists for the Scheme to blow out in size and scope which could be adverse to the tax payer, the banking industry and the LMI industry all who currently support the housing market.
QBE is looking forward to getting more detail regarding the scheme through the consultation process, as Ms O’Loughlin stated in the hearing:
We're also looking forward to continuing consultation—with NHFIC, with Treasury and with government—on the proposed investment mandate, because, as you are aware, at the moment the bill is a fairly broad, high-level proposition. A lot of the detail around targets and eligibility criteria is yet to be consulted on.
Almost all of the detail of the scheme will be provided through the Investment Mandate which was not provided to the committee for examination. While Labor Senators understand that this provides greater flexibility for the scheme’s implementation, it has meant that the committee has been unable to conduct a full and proper inquiry.
What became clear throughout the work of this committee is that the Investment Mandate had not been finalised. Oral evidence from The Treasury and NHIFIC suggested that the mandate was still in draft form and would be subject to public consultation although a date for circulation was not made available:
Senator McAllister: Thank you. Ms Wilkinson, I think you said that the draft investment mandate would be provided after the passage of legislation?
Ms Wilkinson: No, I didn't say 'after'. I said I hoped it would be in the next few weeks. That is ultimately a decision for the minister, for government. I'm sorry if I implied that. I'm not saying one thing or the other. I'm hoping it will be in the next few weeks.
The committee has therefore examined a bill in which the main legislative instrument to give effect to the new scheme has not yet been publicly circulated or finalised. While Labor Senators are keen for the scheme to enter operation at the beginning of next year, it would have been more satisfactory that the Investment Mandate was examined at the same time.
For this reason it is the view of Labor Senators of the committee that the review as recommended in the Explanatory Memorandum should be more carefully examined:
A key indicator of whether the Scheme has achieved its objectives will be whether the Scheme is able to enable prospective first home buyers to enter the housing market sooner, without having to wait longer to save the requisite deposit. It should operate alongside a viable and profitable LMI industry that continues to support other FHBs’ access to the market. Maintaining the viability of the LMI industry, as it allows potential home buyers the ability to enter the property market sooner than they would otherwise be able to. An independent review of the Scheme will be undertaken within three years of the Scheme’s commencement to ensure that objectives are being met.
A review to be conducted within three years of the commencement of the scheme is too long given that there will potentially be up to 40,000 participants in the scheme by this point. Labor Senators are therefore of the view that a review should be conducted no more than 18 months and no less than 12 months after the commencement of this scheme.
Labor Senators recommend that the independent review should be conducted no more than 18 months and no less than 12 months after the commencement of this scheme.
Senator Alex GallacherSenator Jenny McAllister
Deputy ChairSenator for New South Wales