Increasing Affordability of Housing for First Home Buyers

1. 1. The housing market in Australia

      1. Introduction and summary

The subject of the inquiry is broad ranging, and this submission does not cover all of the questions canvassed in the Commission’s Issues Paper.¹ As a provider of finance for housing, ANZ aims to assist the Commission in understanding what has occurred in the housing market, particularly in terms of the relationship between interest rates, borrowing and trends in house prices. We also provide comment on some of the proposals already floated as possible policy solutions, and suggest consideration of a measure to assist first home buyers to save for a deposit, while acknowledging that measures to increase the supply of housing (such as planning policies and the release of land for new developments) will have the most substantial impact in terms of reducing house prices.

High house prices have created, for some people, a ‘deposit gap’. There is no shortage of finance for house purchases, but lenders cannot prudently lend to borrowers who cannot save and invest some of their own money in the house.² As described in Chapter 2 of this Submission, the Australian Government can help bridge the deposit gap by allowing savings for home ownership to accumulate with favourable tax treatment.

ANZ also submits that while house prices have certainly increased rapidly in recent years, the ability of borrowers to repay their mortgages has not diminished, largely because interest rates have fallen at the same time that house prices have risen. ANZ submits that there is no reason to believe that house prices (in general) have been caused by a price ‘bubble’. Rather, house prices have been determined by the fundamental factors of demand and supply.

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  ANZ does not believe that house prices are caused by a ‘bubble’. Where there may be certain sub-markets where bubbles have been arguably present — inner city apartments, for example — this is not true for Australia as a whole, where house prices can be explained by an environment of low interest rates and rising incomes as growth in housing supply has remained steady.
  
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  For first home buyers attempting to accumulate the 10 per cent of the purchase price required (made up of a minimum deposit of five per cent of the purchase price plus purchase costs - primarily stamp duty), the fact that the required deposit grows at the same rate as house prices could make the task difficult. For them, a policy measure such as a targeted tax incentive for designated savings could be desirable.
  
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  Measures which provide first home buyers with windfall gains — such as cuts to stamp duty levied by State Governments — are likely to be largely capitalised into prices and hence unlikely to help affordability.
  
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  Shared equity schemes, such as recently proposed by the Menzies Centre, while possibly a useful device for some people to diversify their assets, are unlikely to put much downward pressure on house prices, and could in fact have the opposite effect.
  
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  Proposals for a ‘housing life line’ likewise have some merit, but they are really a specialised form of social security that will not affect house prices in a material way and so not contribute substantially to making first homes any more affordable.
  
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  The only lasting measures that will lead to a fall in house prices are those which increase the supply of housing, especially for first home buyers.
  

2. Trends in house prices

Source: REIA, ANZ

Source: REIA, ANZ