There is no denying housing reform is urgently needed in Australia to make housing more affordable and accessible to everyday Australians.
Author
- Michelle Cull
Associate Professor, Western Sydney University
Both major parties have now announced the incentives they are offering to help first-home buyers. While both Labor and the Coalition are hopeful their newly announced policies will win the most votes, how easy will it be to implement and how will it help first-home buyers?
What new housing incentives are being offered?
Refreshingly, both major parties are offering more novel policies than have previously been announced. In addition, both policies offer welcome relief to first-home buyers.
As part of their $43 billion housing plan that already includes delivering 55,000 social and affordable homes, a Labor government will spend $10 billion to help more Australians purchase their first home.
The first part of this plan includes increasing housing supply by building 100,000 new homes over eight years - just for first home buyers. The government would work with the states to identify where these homes will be built, beginning next financial year.
The second part of Labor's plan involves expanding the 5% deposit Home Guarantee Scheme to remove the annual cap of 50,000 places and removing income thresholds.
It will also increase property price caps to better reflect local markets so that buyers can look to purchase a property where they currently work and/or live. For example, the current cap in Sydney will increase from $900,000 to $1.5 million.
The Home Guarantee Scheme, which has already been used by more than 150,000 Australians, allows eligible first-home buyers to purchase a property with a 5% deposit and without paying Lenders Mortgage Insurance . The government guarantees part of the home loan. This will speed up the time that it will take for first-home buyers to save for a deposit, as they will be able to use a smaller deposit to secure a home.
The Coalition have announced they will permit first-time buyers of newly built properties to deduct interest on up to $650,000 of their mortgage against their income for up to five years. The first home buyers, however, have to remain in their home for this time period.
This will be available to singles on incomes up to $175,000 and couples with a combined income of up to $250,000. This is similar to the mortgage interest tax deduction currently permitted through negative gearing to property investors with rental properties .
How easy are these housing policies to implement?
While Labor's Home Guarantee policy is already in operation, it should be relatively easy to expand this policy.
However, in terms of building 100,000 homes, we know Labor is already well behind on its plan to build new housing stock, even though the number of dwellings increased by 53,200 to 11,294,300 for the quarter ended December 2024 .
This is where Labor's policy of increasing subsidies to apprentices in the construction industry, as well plans to invest in prefabricated and modular homes and introduce a national certification system will help. While welcomed by housing advocates, the detail surrounding exactly where the houses will be built is an important part of this new housing policy.
The Coalition's proposal is more radical and will require changes to legislation before it can be implemented.
It may also need to form part of more holistic taxation reform to have the intended effect. Details are still needed as to how this reform may affect the current capital gains tax exemption and other property tax concessions for one's principal place of residence.
Whether the Coalition have other taxation reforms planned is yet to be revealed.
Could these policies work?
The latest housing policies announced by both major parties are a step in the right direction.
However, the details are missing and concerns remain around how these policies will interact with other policy proposals and whether there will be an unintended effect of pushing up housing prices.
While increasing the supply of housing is the answer to the housing crisis, whether these houses can be built quickly is still questionable. The 5% deposit for first home buyers will go a long way in enabling first home buyers to save a deposit. However, this means the remaining 95% still needs to be repaid and first home buyers will still need to prove they can service the loan. It will also increase pressure on first home buyers if interest rates increase early in their home ownership journey.
First home owners who want to claim a tax deduction on their mortgage interest will still need to construct a new home, which will take some time to build.
The tax deduction will help first-home buyers in the early years of their mortgage when mortgage interest is highest. However, it does tend to favour higher income earners who receive larger tax deductions due to their higher tax brackets.
While it does little to put downward pressure on housing prices, the Coalition has combined this with an aggressive immigration policy aimed at increasing supply of established homes.
Given the tight and expensive market in Australia, the latest housing incentives announced by the major parties may come as welcome news to first home buyers. But any new policy must be viewed as part of the larger package of policies being offered. First home buyers are not the only ones experiencing problems with housing affordability and accessibility.
If anything, the contest for the federal election has forced both major parties to seriously consider their housing policies and share these with the public. However, the hardest part is yet to come: whether the incoming government's housing policy is actually effective.
Michelle Cull is a member of CPA Australia, the Financial Advice Association Australia and President Elect of the Academy of Financial Services in the United States. Michelle is an academic member of UniSuper's Consultative Committee. Michelle co-founded the Western Sydney University Tax Clinic which has received funding from the Australian Taxation Office as part of the National Tax Clinic Program. Michelle has previously volunteered as Chair of the Macarthur Advisory Council for the Salvation Army Australia.
