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Economics Legislation Committee into Help to Buy Bills


Event: Economics Legislation Committee into Help to Buy Bills
Date: 5 March 2024, 10.30am AEDT
Speakers: Alex Waldren, National Director Industry Policy Master Builders Australia; Shane Garrett, Chief Economist Master Builders Australia; Simon Croft, Chief Executive Industry and Policy Housing Industry Association; Tim Reardon, Chief Economist Housing Industry Association; Senator Andrew Bragg; Senator Mehreen Faruqi; Senator David Pocock; Dean Smith MP; Senator Jess Walsh
Topics: Help to Buy, housing supply, capital gains tax


Senator Jess Walsh, Chair, Economics Legislation Committee: Welcome. I understand that information on parliamentary privilege and the protection of witnesses giving evidence to Senate committees has been provided to you. Thank you for being here. Does the MBA have a brief opening statement to give? Please proceed.

Alex Waldren, National Director Industry Policy, Master Builders Australia: As you’re aware, Master Builders is a national building and construction industry group representing 33,000 members across residential, commercial and civil construction. We’ve said in previous statements that we urge parliament to adopt sensible housing policies that both benefit aspiring homeowners and assist people unable to buy a home through policies that enable more rental supply. With an ambitious housing supply target committed by National Cabinet, governments have committed reforms to remove barriers to supply and help people into housing. We commend recent measures to improve these policy outcomes, such as releasing more land for housing, establishing Housing Australia and the Future Fund, commencing planning reforms and maintaining important first home buyer and investor incentives. The Help to Buy scheme adds to existing first home buyer incentives as part of a whole-of-housing policy approach to boosting supply and affordability. The targeted approach of the scheme also aligns with the view of the Productivity Commission, which supports targeted assistance where it helps to moderate wealth inequality. Help to Buy is a sensible policy approach that looks at lifting housing affordability measures while not negatively impacting the investment market. It builds on the success of schemes like the Home Guarantee Scheme, which we are seeing a positive uptake in. Unlike first home buyer grants or stamp duty concessions, equity schemes are considered to have a small impact on inflationary pressures because assistance is repaid when the house is sold. This policy approach is supported by lenders and investors and, through a combination of state and Commonwealth options, helps share the risk that might be perceived with such a program. The proposal to provide higher equity caps for new homes compared with existing homes is commended. Master Builders has suggested in its submission that you could actually push the cap further to 50 per cent for new builds. Designing the scheme in this way might help divert demands toward new home building and mean that the Help to Buy scheme works to expand more stock of dwellings, as well as making buying a home more achievable for households that cannot buy a home without support. The proposal to restrict eligibility for the scheme to homes below certain price thresholds, depending on geographic markets, is a sensible approach given that home prices vary from place to place. We need to continue to develop policies that increase housing supply while also encouraging people into homeownership. Adding to and not taking away policies that boost supply and access to housing are necessary if we are to meet ambitious housing policy targets. Changes to negative gearing and CDT will see a fall in the number of homes and drive away investors when we need houses in a tight rental market. They shouldn’t be considered in this debate. Master Builders analysis in 2018 of proposed changes to these taxes found that we’d see a fall in construction of up to 42,000 new houses. Just to wrap up, we support sensible housing policies that both benefit aspiring homeowners and assist people who are unable to buy a home through policies that enable more rental supply. Thank you.

Simon Croft, Chief Executive Industry and Policy, Housing Industry Association: Thank you for the opportunity for the Housing Industry Association to make a submission to this inquiry and appear at this hearing. HIA is Australia’s only national industry association representing the interests of the residential building industry. HIA represents a membership of 60,000 across Australia, and members are involved in the delivery of more than 200,000 new homes each year through the construction of new housing estates, detached homes, low- or medium-density housing developments and apartment buildings as well as the completion of renovations of Australia’s nine million existing homes. HIA exists to service the business it represents and advocates for policy on behalf of members to further advance new home building and renovating, enabling members to provide affordable and appropriate housing to the growing Australian population. HIA’s submission to this inquiry focuses primarily on the issue of homeownership challenges in Australia. As the committee is aware, there’s been extensive commentary over the past few years regarding the significant undersupply of housing in Australia. Equally, access to finance for a deposit is the biggest obstacle for Australians who are trying to buy their first home. There is no silver bullet to address the current housing supply challenges. Rather, it will require a multipronged approach that looks at a broad range of policy options and policy levers and cannot be addressed solely by one area of policy. This will cut across housing supply, supply chain stability, access to skilled workers, planning and zoning reforms, and policy settings that do not apply unnecessary or overly cumbersome rules on businesses, as well as financial and monetary policies that support investment in housing. In relation to this inquiry and the Help to Buy bill, HIA has indicated our support from the outset, on the announcement of the scheme. Our support centres around this scheme being one of a range of measures that could assist first-home buyers and other people who may be struggling to secure a deposit on a home to get into homeownership. It is understood that the scheme will assist homebuyers in acquiring their first home through the provision of an equity contribution by the Commonwealth. Those who qualify for the scheme will be able to purchase their home with a deposit of five per cent and in some circumstances as low as two per cent of the purchase price. This scheme will be similar to other programs, such as the Keystart program, which has been successful in providing an affordable pathway into homeownership, enabling more Australians to get into their own home sooner. It’s considered that this scheme should, in the first instance, be tested as a pilot and reviewed after 12 to 24 months of operation with respect to interest and take-up and potentially looking at further enhancements. At a time when getting into first-home ownership or getting back into homeownership is for many Australians getting harder and the time required to save a deposit is increasing, HIA supports all levels of government investigating all policy options to achieve a steady and adequate supply of housing for all Australians, enabling them to get into homeownership sooner. Therefore, schemes such as Help to Buy that look to assist first-home buyers or other cohorts into homeownership and support delivery of more homes are an important part of the mix to address our current housing shortages. Thank you for allowing us to contribute to this important conversation, and we welcome the opportunity to discuss these matters further as part of this inquiry.

Chair: Thank you very much. I’ll start with Mrs Waldren and Master Builders Australia. You said in your opening statement that there’s a fair amount of work going on around boosting supply. There’s now a $25 billion pipeline over the decade in terms of social and affordable housing builds, and you also mentioned the National Cabinet starting the National Planning Reform Blueprint that will look at planning, zoning, land release and other measures to address supply and affordability. From your opening statement, I think those are some of the really big-ticket kinds of items to address supply. You’re very supportive, as you’ve said, of this bill. Going specifically to this bill, it’s really about the deposit hurdle for home buyers, which is what Help to Buy directly addresses, and also assisting with the ongoing serviceability of a mortgage. How do you see Help to Buy supporting people who might be able to service an ongoing mortgage but are really struggling to get over that deposit hurdle?

Alex: We think it’s a complementary approach to the Home Guarantee Scheme. We think it’s worth testing a few approaches. We know, as others have touched on, that Keystart has been successful in WA. The federal government stepping into this space provides more options for first home buyers and is considered a broader and more effective approach than grant schemes and the like. So it complements the First Home Guarantee scheme, which we think is a good step, and it provides another option for first home buyers.

Chair: I talked in my first question and you talked in your opening statement about all of the things that are going on with supply at the moment, that being the really big issue. This bill incentivises the construction of new homes with a 40 per cent equity share, compared to the 30 per cent for existing builds. Do you think that that additional level of shared equity will help by at least targeting the program to new builds?

Alex: Yes, we think it does, and in our submission we’ve actually said that you could potentially push the envelope to 50 per cent equity. That might tip it more in favour of new builds. A bigger gap between existing and new might prompt a little bit more on the supply side.

Chair: To share the call, I’ll go to the deputy chair.

Senator Andrew Bragg, Deputy Chair, Economic Legislation Committee: How many houses need to be built in the next 12 months for us to make a meaningful impact on the supply question?

Tim Reardon, Chief Economist, Housing Industry Association: How many homes can be built?

Senator Bragg: How many should be built?

Tim: How many should be built? I would say certainly the 1.2 million target—if were able to build that on an annual basis, the 240,000, that rate would take five to 10 years to meet the pent-up demand for housing. How many will be built? It’s less than 200,000 in the course of the next 12 months, and we can see that, given the impact of interest rates and the building approvals data that was mentioned a little earlier, we’re looking at one of the lowest years for building in more than a decade.

Senator Bragg: So you think that the annual number might be more like double the 240,000, do you?

Tim: If we have population growth at 1.5 per cent and we have economic growth at 2.5 per cent, then 240,000 homes per year will not be sufficient to meet underlying demand.

Senator Bragg: Why do you think we’re not building enough houses? Is it mainly a clogging-up of approvals, is it zoning or is it planning controls? What is it mainly?

Tim: It’s a combination of all of the factors. First up, if you continue to increase the taxation on houses, which at a federal and a state level has occurred, then you will increase the cost of housing, and demand will decline. You put a price on carbon; you get less carbon. You put a tax on housing; you get less housing. Second, increased regulatory costs increase the cost of construction. Then we enter into a discussion around the capacity—industry supply chain constraints over recent years—and, of course, as has been well discussed and debated, there’s the topic of planning regimes. Whether planning regimes have been suitably informed of what population growth will be and what underlying demand will be is irrelevant. They have constrained the supply of housing, both greenfields and brownfields, and high rise, medium rise and low rise. In all forms of housing, it has slowed down the construction of new homes.

Senator Bragg: How many developments have not been approved in the last 12 months?

Tim: The answer to that would be that every home that has been sold has been approved. So your question is: how many could we have sold if the price was lower?

Senator Bragg: No, I’m trying to get to the nub of the issue around the non-approval of new developments and new housing projects. What proportion of new projects are not approved?

Tim: I think the answer would be that a large share of the projects taken to a local council will eventually get approval. It’s a question of timing. A project doesn’t go to local council for approval until it’s sold. There is a small volume of homes at the moment that are investor led, and they would be builders undertaking speculative investments or investors that may not require financing that would be taking projects to local councils for approval that haven’t been sold. But, as a general rule, projects are sold, then approved and then commenced.

Alex: I can add a little more in terms of what we think is outstanding. The ABS produces data on this kind of information. I haven’t got the actual number at my fingertips so we can share it with the committee, but, in the last few years, there have been substantial delays around planning and building approvals that have pushed out time frames for completions by three months, in some cases, for detached housing and more for apartments. But we can share that data with you; I don’t have the exact figures at my fingertips.

Senator Bragg If I get that on notice, that would be good. How material is this 10,000-a-year scheme? How material is this scheme?

Shane Garrett, Chief Economist, Master Builders Australia: Last year, in 2023, we had about 117,000 loans to first home buyers. This is 10,000 per year. It’s close to about 10 per cent of how big the first home buyer market was last year. It is not huge, but it’s still better to have it than not. Our view is that, depending on how its design is eventually settled, it will succeed in translating the strong demand for homes that is out there at the moment into newly built homes on the ground. That’s why we think it’s so important. There are also areas of its design that could be amended to improve its ability to generate new home building supply. But if it is successful—and we will only know how successful it will be by actually implementing it—there’s always the scope for it to be extended or expanded on, depending on whether there’s an appetite to do that.

Senator Bragg: I have one last question. What are your views on opening up super to first home buyers as part of a broader push on supply?

Simon: I might answer that one. We appeared at the hearing just last week and made our representations about looking at all those available options. Currently, we have the First Home Super Saver Scheme; looking at that scheme, that’s already had 9.5 thousand people utilise it. We think there certainly is the opportunity to open up that conversation more broadly to looking at super as leverage. We’d look at the Canadian scheme that we mentioned that’s already in operation that has been, we understand, successful in that regard. Part of the mix here is to look at those available options, particularly with the housing challenges currently facing Australia.

Senator Bragg: Okay. That’s it. Thank you.

Senator Mehreen Faruqi, member Economics Legislation Committee: Good morning, everyone. Is it correct to assume that, when property prices go up, the members of your organisations are likely to make higher profits?

Tim: No.

Alex: No, and the last two years have demonstrated that.

Senator Faruqi: So, you haven’t made any profits with the increasing prices?

Alex: I think we’ve had record insolvencies. We’ve got a lot of people who are just breaking even, if that. So, the inflated housing costs have really compounded the pressure in the system and the industry.

Senator Faruqi: The inflated housing costs, though, haven’t doubled in the last 10 years. But, anyway, I’ll move on. In your submissions—

Alex: And it’s a combination of land and housing; the costs of construction as well as the cost of land.

Senator Faruqi: In your submissions, you have called for expanding the Help to Buy scheme. Am I correct?

Shane: Yes.

Senator Faruqi: You may know that many experts have actually said that expanding the scheme, or even the scheme as it stands now—and these are experts from the Australia Institute, the Centre for Independent Studies and the Productivity Commission—schemes like Help to Buy risk increasing house prices and do have an inflationary effect on house prices. Is that something that you’re aware of?

Shane: What we’d say is it depends really on the design of the scheme. If the scheme results in demand being added into the established home market, there is a risk, depending on how big the scheme is, that that could result in higher prices in the established home part of the market. We’d argue that we should design the scheme in a way that doesn’t push prices up but does push new home building activity higher so that demand for new homes is more fully met by the supply of new homes out there. So it does really depend, I think, on how the scheme is designed in terms of how it reconciles demand with supply in the market.

Senator Faruqi: Okay. Thank you.

Chair: Senator Pocock.

Senator David Pocock, member Economics Legislation Committee: Thank you. I’m interested to know if you think there’s merit in increasing the income thresholds for the scheme?

Alex: In our submission we’ve said we think they’re reasonable at this—well, we haven’t actually said that in the submission; we’ve said around the land. I think, as others have touched on, we need to test the proposal. We think the government has reached a reasonable point in terms of the proposal. We’d suggest, as Shane has touched on, that it’s more suitable to push the equity caps than it would be those thresholds. When you go back to Productivity Commission reports and the like, they suggest that it should be really targeting those people in greatest need. So we want to be sure that we’re focusing on that cohort.

Senator Pocock: And, in your submission you’re suggesting the increase of equity from 40 per cent to 50 per cent for new builds. Do you see that meaningfully driving up new supply?

Shane: We can’t say for sure. We know that it would probably result in more supply than if the threshold was at, say, 40 per cent.

Senator Pocock: Yes.

Shane: But we can’t honestly put a figure on it. It may be that 50 per cent might end up being too low and—we’re just more suggesting the concept of having a wider gap between the equity cap for new homes and the equity cap for established homes. We think the wider that difference is, the more likely it is that this scheme will act as a device for generating new home building supply.

Senator Pocock: And what if you just restricted it to new supply—new dwellings?

Shane: If that was the case, if it was purely down to new supply, then I think it would be very favourable in terms of generating new supply. It’s something that would result in up to 10,000 new homes being built every year, which would be good. Again, though, there are places and there are markets where the amount of new supply—because of the fact that the area might be so built up and everything—is quite low and it might disadvantage certain homebuyers in those areas. So I think there probably does have to be some established content to it. But, again, we think that the more fine-tuned it is towards reconciling demand with supply for new home building, the more likely it is to boost new home building supply. That would be our general view on it.

Senator Pocock: In opening statements you talked about not wanting to do anything to things like the capital gains tax discount because of the impact it has on supply. What if you said you could only have that capital gains tax discount on new supply? What impact would that have?

Alex: We did some assessments of that back in 2018, as I touched on before, and they found that there would be an impact on new supply. You’d lose 42,000 homes annually. And that’s based on no other policy setting—


Senator Pocock: Even if you’re still able to get the capital gains tax discount on a newly built home, but not on existing stock, you’re saying it would still reduce it?

Alex: Yes, we are. That’s what our report picked up previously as well. It looked at the whole package that was put on the table in terms of negative gearing and capital gains tax. You’d probably have to do some more analysis around that, but our view is there will be an impact.

Senator Pocock: One of the live issues in this is whether or not this will push up house prices. Do you have a firm view on that?

Shane: For two reasons I think it’s unlikely to push up house prices. First of all, the size of the scheme relative to the size of the market. It’s 10,000 per year. Market transactions run into the hundreds of thousands each year. I think the size of it is quite small relative to the size of the market. Even so, as we say, some of the places on this scheme will be used to purchase newly built dwellings or fund the construction of a new home. For those two reasons, we think the inflationary impact is likely to be quite small.

Senator Pocock: Thank you.

Chair: There’s a lot of interest in this hearing today on broader housing policy and how we increase supply. That’s okay, but we have a bill in front of us, which is the Help to Buy shared-equity scheme. Just to clarify: both your organisations support that bill passing—is that right?

Alex: Yes.

Simon: Yes.

Chair: Some of the tweaking that’s discussed around the scheme includes increasing the income threshold, decreasing the income threshold, raising the property price caps, and your own submissions as well around potentially increasing the equity portion. I think you also said in your statements that at some point we have to try and strike a balance, move forward and test it out. Is that broadly your submission, that we should move ahead and then assess the program and test whether there’s any tweaking in those variables within the program?

Alex: Yes, that’s our view.

Simon: In our submission we talked about the first 24 months as a pilot, and then we could revisit some of those caps or thresholds and, potentially, if it’s getting that success, look at where there might be more opportunities for its enhancement.

Chair: Great. Thank you all very much for being there on the panel for us today in Canberra. We very much appreciate your time. You go with our thanks. Thank you.

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