What if a first home buyer could buy a $600,000 dwelling for $545,000 without compromising on quality?
Suddenly they have a $54,500 'deposit' and if they already have, say, $55,000 of their own savings that deposit would swell out to around 18 per cent of the price. Let me show you how it can be done without pushing up prices.
But first, let’s underline the problem. The Australian community is suddenly coming to grips with the fact that the current generation of young people can’t buy a dwelling without taking on a huge amount of debt.
And this problem is starting to be particularly severe on the vast numbers of essential service workers like teachers, restaurant workers, nurses and journalists where the community is simply not generating enough wealth to pay them greater salaries.
If we don’t start to look for answers, then there will be a very disaffected generation that will, in time, tear down superannuation plus aged and other pensions.
Already, retirees who saved all their life but are struggling in today’s low-interest-rate world are almost automatically branded as ‘wealthy retirees’ by the up-and-coming generation as their disaffection rises.
Joe Hockey’s solution of “finding a good job” has sense to it but does not get anywhere near the core of the problem.
The political party that comes up with even a partial solution will have an enormous advantage at the next election because they will not only attract young voters but the older generation is also uncomfortable about what is happening to their children and grandchildren.
So, I now want to test my solution, which comes with help from major players in the industry.
The only way we can provide first home buyers with a reasonably-priced dwelling of their own is to increase the supply. So, all incentives must be integrated into that aim.
My first step is to eliminate the GST on new homes for first home buyers. At present, the cost of every new housing development is increased by 10 per cent by this tax on first home buyers. States would scream but when the community understands that the tax is responsible for more than 10 per cent of the first home buyers debt, support will intensify.
Any incentive for first home buyers must be matched by measures to lift the supply of dwellings. Previous assistance to first home buyers fell down because the developers simply lifted the prices. Accordingly, any first home buyer help for new dwellings must be matched by moves to further increase the supply of dwellings. A core part of the higher price dwelling shortage we currently face is caused by the actions of state governments and local councils. (The conspiracy to boost house prices, June 10)
Both state governments and councils are hooked on the revenue that comes with higher dwelling prices so they restrict the supply and boost prices with expensive requirements. We probably need financial penalties for states and councils that hold back supply to boost their revenues.
A current proposal being canvassed by the ALP is that negative gearing deals be confined to new dwellings. That would certainly help the supply and take the price pressure off existing dwellings.
Remember, according to Infrastructure Australia, by 2031 -- just 15 years away -- the population of Melbourne will rise from 4.5 million to 6 million and Sydney from 4.9 million to 6.1 million. We are going to need an enormous number of dwellings to stop a huge shortage, which would send prices much higher.
We are also going to need capital. Asian buyers of new dwellings are currently essential but even if we change the first home buyer and negative gearing rules, Asians will still be vital.
If Tony Abbott or Bill Shorten went to the polls with that policy, it would be a very courageous (foolhardy) set of state governments that opposed it. They will be able to cover the shortfall in revenue through the employment activity it creates in their state -- the building workers spend the money they earn and pay GST on much of the expenditure.