Federal Budget 2020: New home builds in focus with government boost for first-home buyers

Government assistance for first-home buyers and loans to build affordable housing are at the centre of federal Budget efforts to support the construction and housing sectors.

The extension of the First Home Loan Deposit scheme was one of the few housing-related measures in this year’s federal Budget, handed down by Treasurer Josh Frydenberg on Tuesday night.

The scheme enables first-home buyers to get into the market with a deposit as low as 5 per cent while avoiding lenders’ mortgage insurance, with the federal government acting as guarantor on the loans.

The scheme, as announced on Saturday, will be rolled out to an extra 10,000 first-home buyers  this financial year if they build new homes, with property price caps for new homes also lifted as part of the changes.

“This builds on the 20,000 first home buyers we are helping to purchase a home this year,” Mr Frydenberg said in his Budget speech.

The measure will stimulate activity in housing construction and is estimated to generate an additional $800 million in economic activity.

Despite industry fears of ongoing job losses in the construction industry, there was no extension to the $680 million HomeBuilder scheme. But the budget papers flagged HomeBuilder had brought forward housing demand – along with other housing policies and ultra-low interest rates – and would provide support to construction activity in late 2020 and early 2021.

Funding for a social housing construction boom was also missing from the budget, despite being flagged by housing experts as a key way to create jobs for the construction industry and support the growing number of people at risk of homelessness in the wake of the coronavirus pandemic.

But the government did commit to more cheap finance to build affordable housing, increasing its guarantee for the National Housing Finance and Investment Corporation (NHFIC) by $1 billion.

The NHFIC, established in the 2017/18 federal budget, provides low cost, long-term loans to registered community housing providers – via the Affordable Housing Bond Aggregator – to support the supply of social and affordable housing.

“This takes the total concessional finance that has been made available to community housing providers to $3 billion,” Mr Frydenberg said.

“It is in addition to the $4.6 billion a year we provide in rental assistance.”

The government will spend $600,000 over the next four years on the two guarantee measures, along with an independent review of the NHFIC – to establish whether it is meeting its objective of improving housing. This has been included as part of the JobMaker plan, as the moves are set to drive jobs through housing.

Although access to cheaper financing has been welcomed by the sector in recent years, industry experts have repeatedly flagged that an additional government subsidy is needed to ensure the viability of affordable and social housing – which is priced at a below market rate.

Experts had also called for an increase to Commonwealth Rent Assistance, which has fallen well below the level of rent paid by low income residents. Brendan Coates, household finances program director at the Grattan Institute, recently told Domain it would need to increase by 40 per cent to bring it back in line with Howard-era levels.

The funds come amid a slowdown in construction activity during the pandemic recession, with population growth slowing as international borders stay closed.

Dwelling investment is set to remain weak in the near term, with the Budget forecasting a fall of 11 per cent in 2020-21, as construction activity continues to slow and stage 4 restrictions in Melbourne reduce the level of construction activity – particularly for apartment development sites. Dwelling investment is then forecast to rise by 7 per cent in 2021-22.

Under the budget measures, older Australians and those with a disability, as well as their families, will also benefit from a new capital gains tax exemption for granny flats – where there is a formal written agreement.

Currently, families often opt for informal arrangements – in a bid to avoid capital gains tax – when a family member resides in their home, such as when an older parent lives with a child in the same home or a separately constructed granny flat. This can lead to financial abuse and exploitation if family relationships break down.

The measure, from July next year subject to passing parliament, will remove the capital gains tax impediment. The Budget estimates said this would have an unquantifiable impact on receipts over the forward estimates periods.

HomeBuilder, the First Home Loan Deposit Scheme and the additional affordable housing financing, will complement the government’s recent wind back of Australia’s responsible lending laws, which the Budget papers say will reduce the regulatory burden on lenders and borrowers.

The reforms will reduce the time taken for consumers to apply for credit and simplify the application process, unlocking housing demand currently restricted by prescriptive lending laws.

The budget papers also noted housing wealth had declined only modestly, as housing prices softened.

Other housing measures included an additional investment of $150 million for the Indigenous Home Ownership Program, for Indigenous Business Australia to deliver 360 home loans for new housing construction in regional Australia.

The extension will also support over 1,000 jobs by unlocking financing for “shovel-ready” construction projects in regional Australia and increase the proportion of Aboriginal and Torres Strait Islander people living in appropriately sized housing.

There was also ongoing funding to support state affordable housing services this year, including $1.6 billion for the National Housing and Homelessness Agreement, $3.7 million to improve public housing in remote communities in the Northern Territory and $237.2 million for delivery of new houses, housing refurbishments and housing-related infrastructure in remote regions of Queensland and the Northern Territory.

Real estate agency Ray White backed the support for first-home buyers, saying the expanded First Home Loan Deposit Scheme would boost apartment sales as well as detached housing.

“Unlike the established market, apartment sales have been difficult this year, so this is a very welcome boost for this sector,” Ray White group managing director Dan White said.

“It will rebuild developer confidence to commence construction of apartment projects.

“We expect property activity for the balance of the year to be stronger than it was pre-COVID.”

The Urban Taskforce welcomed the extended First Home Loan Deposit Scheme, but called for an expansion of the HomeBuilder program too.

“The same [price] thresholds should be applied to HomeBuilder,” Urban Taskforce chief executive Tom Forrest said.

“Greater Sydney, including Newcastle, should have a HomeBuilder threshold purchase price of $950,000, and the timeframes should be extended by a further 18 months to make HomeBuilder relevant to apartments (which take longer to build).”

The Property Council also backed the extension of first-home buyer support and the HomeBuilder package, but warned slower population growth was a risk to the economic recovery.

“These population forecasts underscore the critical importance of a comprehensive plan to reboot our migration program and get our population growing again,” PCA chief executive Ken Morrison said.

The peak real estate agents’ body welcomed the Budget’s tax cuts, saying they would improve housing affordability, but said even more Australians could have been helped to buy their first homes.

“The First Home Loan Deposit Scheme should be extended to all eligible buyers of all homes, not just new builds,” Real Estate Institute of Australia president Adrian Kelly said.

Mission Australia warned the lack of investment in new social housing would push more people into homelessness.

“Investing in 30,000 social homes within the next four years is an obvious solution that will not only help to end homelessness in Australia but will also create vital jobs in the construction industry,” Mission Australia chief executive James Toomey said.

“Despite a significant investment in infrastructure in this year’s Federal Budget to help create jobs, we are deeply disappointed the essential social infrastructure of social housing has been ignored.”