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How the federal election will affect renters

The federal election will likely take place on either 11 or 18 May, and housing policy is expected to be a key battleground for the major parties.

One of the fiercest debates will revolve around negative gearing. The Liberal Party wants to keep the policy as it is, while Labor wants to limit it to newly constructed properties and properties that are already benefitting from the tax break. Expert opinion is mixed.

For every analyst who believes that the policy needs to be scrapped, in order to make housing more affordable, there are two more who argue that house prices have already dropped enough. And then, of course, there are those who believe it’s little more than a storm in a teacup.

Here’s how the federal election will affect renters.

Negative gearing

Negative gearing is a policy that allows investors to offset any losses they make on an investment property against their taxable income. At first glance, it might not look like something that’s important to renters. But dig a little deeper and you’ll find that there’s a clear link between the policy and how much renters are asked to pay for their homes.

Under the Morrison government, the policy allows investors to offset losses made on any investment properties – old or new – against their taxable income. Its supporters argue that this attracts investors to the market – particularly mum-and-dad investors who would otherwise be unable to afford an investment property – and boosts the supply of rental housing, which, in turn, keeps a lid on rent. Chief Economist Nerida Conisbee agrees and argues that Labor’s policy, unlike the Liberal Party’s, would therefore lead to an increase in rent.

“Almost all rental housing in Australia is owned by mum-and-dad investors and many rely heavily on negative gearing to make the investment worthwhile,” she said.

“If fewer buy, then there will be less rental housing and, unless the number of renters suddenly drops dramatically, rents will rise.”

Treasurer Josh Frydenberg subscribes to a similar point of view and has repeatedly attacked Labor’s policy in newspaper op-eds, TV interviews and speeches.

The way he sees it, Labor’s policy will lead to a reduction in the number of properties available for rent, at a time when tighter lending conditions have already led to such a reduction. The result, he argues, will be a significant increase in rent.

Grattan Institute research fellow Brendan Coates, however, believes that the impact of negative gearing has long been overstated. He argues that Labor’s policy wouldn’t have much of an impact on the property market, because the tax breaks simply aren’t “worth enough in the context of the $7 trillion housing market”.

“And the claim consistently being made that the policy will have a big impact on rent – that’s getting the argument the wrong way around. Rent sets prices; prices don’t set rent,” he said.

Either way, if Labor were to win the election, they would only have six weeks to introduce the changes before the start of the new financial year – and would need the support of four of the 10 crossbenchers to pass the changes.

This means that the changes to negative gearing wouldn’t likely come into effect until July 2020.

Labor’s affordable housing plan

Labor’s other major policy is its affordable housing plan, which will offer 15-year subsidies of $8,500 a year to investors who build new houses and lease them out for 20 % below market rent. 

The party plans to spend $100m on the policy during its first term, during which time it would build 20,000 new houses, and $6.6bn over the decade to 2028-2029, during which time it would build a total of 250,000 new houses.

The policy is essentially an updated version of Kevin Rudd’s National Rental Affordability Scheme, which struggled to attract investors, and fell well short of its target of building 50,000 affordable homes in four years, instead building 37,000 in ten.

AMP chief economist Shane Oliver believes that Bill Shorten’s updated policy will run into similar problems.

“I think investors are wary about offering such low rents – perhaps worried that the people who take them up may not look after the property. I think they’d rather stick with market forces, rather than take the subsidy,” he said.

Coates also said that the policy had faults. He argued that, while the subsidies would likely alleviate rental stress for some low-income owners, it was expensive and inefficient.

First, he said “it’s hard to tease out what would have been built anyway versus what will be built because of the subsidy”; second, that the numbers didn’t quite stack up.

“Think of it this way. The median weekly rent in Australia is $462 a week, which is just over $24,000 a year. So a 20% rental discount would only cost you $4800, and Labor is offering $8,500 – so where does all the rest go? It goes into the pocket of the landlord,” he said.

“A much better way to [reduce rental stress for low-income earners] would be to boost public housing for people who are really at risk of long-term homelessness, and to offer greater rent assistance for everyone else.”

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Families on an average wage of $86,000 can afford to buy a home in Sydney’s cheapest suburbs

Falling prices have made homes across much of Sydney­ affordable again for middle-income families.

Homes in western suburbs like Kingswood, St Marys, Liverpool, Granville, Punchbowl and Harris Park are back in reach for families on Sydney’s average wage of about $86,000 a year.

Typical properties in those areas went beyond the budgets of average wage earners when prices hit a peak in mid-2017 — and the required mortgage repayments on a median-priced house would have eaten up more than a third of the buyer’s income.

Such a situation, known as “mortgage stress”, generally precludes banks from issuing a loan.

But prices have dipped below the middle-income mortgage-stress threshold over the past year.

For instance, a couple on as little as $27,354.50 each or $526 per week — a combined income of $54,709 — could buy a property in Carramar.

Demographer Bernard Salt said the improved affordability was a welcome change, particularly for Millennials­ who had lost hope of buying when the market was booming.

“Prices were rising faster than they could save and faster than their wages were increasing,” Mr Salt said. “It’s now moving in reverse … more young Aussies can get into the market if they have the willpower to save.”

Granville had one of the most notable improvements for buyers, analysis of mortgage data and CoreLogic median prices shows.

A typical Granville apartment which cost about $542,000 in 2015 now costs $487,500.

A buyer using a loan with a 4.8 per cent ­interest rate, with a 20 per cent deposit, would pay just over $2000 a month in mortgage repayments — which would be considered affordable on an $86,000 a year salary.

The median price of a Punchbowl unit fell from $531,000 in mid-2017 to $487,500 now, while the Liverpool median unit price has come down from $505,000 to $460,750.

Suburbs in Sydney’s inner west recorded even bigger price drops and, while they remain largely out of reach for average earners, look set become to more affordable­ soon.

The median apartment price in Newtown fell 18.4 per cent from $817,250 to $666,500.

First-home buyers have capitalised on the lower prices, with ABS mortgage data showing first-time buyer participation in the market hit a six-year high at the end of 2018.

Thomas Latty, 21, was surprised to find he could afford a deposit. He recently returned from a European holiday with some leftover cash and, after checking ­prices for units in Penrith development East Side Quarter, realised he could afford to buy right away.

“I’d thought it would take me a few more years,” Mr Latty said.

Reinald Struwig and Natalie­ Byrne recently bought their first home in Marsden Park after consulting with Smartline broker Michelle Schaafsma and realising their dream of home ownership was more within reach than they realised.

“The market wasn’t overly competitive,” Mr Struwig said. “It felt like we were in a good position as first-home buyers.”

Urbis economist Alex Stuart said buyers were benefiting­ from a drop investor activity, which was the primary driver of the boom in prices from 2014-17.

Investors have been struggling to get financing due to a clampdown on investment lending.

“First-home buyers are not up against as many other buyers anymore,” Mr Stuart said.

“First-home buyers are also getting a lot of help from (government stamp duty) incentives and that’s made a huge difference.”

This article was originally published in . Here’s the link to the original article:

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THE 2017 ANNUAL BUDGET: Four Important Government Measures that will affect us all

2017 Annual Budget: Four Important Government Measures

The recently conclude 2017 National Budget has changed the playing field around the housing game. Treasurer Scott Morisson in his speech to the House of Representatives last 9th of May 2017 claimed that the 2017-18 Budget was a “fair and responsible path back to a balanced budget.”  Some measures contained in the national budget affects, not only the entire nation in general but specifically the real estate industry.

We have listed four major points below:

  1. First home saving within Superannuation – First-home buyers will be able to voluntarily contribute up to $15,000 per person per year ($30,000 total) to their superannuation to be set aside for a house deposit, and this makes it easier to save for a home deposit. This voluntary contribution called First Home Savers Scheme where savers can contribute from their before-tax income into their superannuation fund and be taxed a 15% superannuation tax rate. Withdrawals will be taxed at marginal rate, less 30 percentage Tax offset.
  2. Elderly encouraged to downsize properties – Elderly Australians (who are65 years old and above) are encouraged to downsize and move to smaller properties, and will be able to contribute up to &300,000 from house sale proceeds to their superannuation at a non-concessional rate starting this July 2018. Both partners can do this, meaning combined, a couple can contribute a $600,000 superannuation. This will be an additional super contribution, and wont be subject to the usual contribution caps and voluntary contribution rules.
  3. National Housing Finance and Investment Corporation (NHFIC) – a bond aggregating body will be established to fund cheap, longer term finance for community housing.
  4. Other Housing Affordability Measures
  • Vacant property penalty will apply to foreign-owned properties vacant for more than 6 months of the year. Foreign investors will be slugged $5,000 if they don’t occupy or lease their property for at least 6 months each year.
  • Capital Gains Tax (CGT) will be denied to foreign and temporary tax residents for properties bought after budget night, with existing properties grandfathered until 2019-2020
  • A 50% cap on foreign ownership in new developments – developers wont be able to sell more than 50% of new developments to overseas buyers.

With readings from: ANZ, BusinessInsider, ABC & TheConversation