Unpacking the housing measures in the 2020-21 Federal Budget

A version of this article, written by Dr Michael Fotheringham, was originally published in The Age's Opinion section on 12 May 2021.

As Australia navigates social and economic recoveries from COVID-19, housing markets across the country are showing strain. House prices are surging across the nation, and rental vacancies are at record lows. No single policy intervention will provide a ‘silver bullet’ to solve Australia’s housing affordability and availability challenges, and housing is not a major focus of this budget.

The budget maintains the National Housing and Homelessness Agreement ($1.6b) with states and territories, funds ongoing housing subsidies such as Commonwealth Rent Assistance ($5.3b) and preserves the status quo of tax incentives for housing investors and homeowners.

It brings a series of incremental measures that are framed around supporting home ownership. The focus on home ownership reflects declining home ownership rates – projected to plummet in coming years.

The Government’s approach over the last few years has been to focus on enabling banks to lend to people who haven’t been able save a home loan deposit, and this budget continues that focus.

The new Family Home Guarantee is a more targeted expression of this model. This guarantee is designed to help eligible single parents buy a home with a 2 per cent deposit. Between 2021 and 2025, a total of 10,000 Family Home Guarantees will be available – 2,500 loan guarantees across the nation each year.

The First Home Loan Deposit Scheme is continuing – rebranded as the New Home Guarantee – supporting 10,000 eligible recipients to purchase a first home. First home buyers who access the guarantee can buy a home with a 5 per cent deposit rather than the 20 per cent required by banks. The Australian Government, through the National Housing Finance and Investment Corporation (NHFIC), effectively guarantees to the lender up to 15 per cent of the home’s value. The intention is that first home buyers can purchase a home sooner as they need a smaller deposit than would otherwise be the case, however the home buyers must be able to afford the ongoing loan repayments.

The new Family Home Guarantee is a more targeted expression of this model. This guarantee is designed to help eligible single parents buy a home with a 2 per cent deposit. Between 2021 and 2025, a total of 10,000 Family Home Guarantees will be available – 2,500 loan guarantees across the nation each year.

While these schemes are useful for those eligible households who can afford the loan repayments, the proportion of first homebuyers who will benefit remains small. Around 155,000 first home buyers took out a housing loan in the 12 months to March 2021; if those numbers continue next financial year, around 8 percent of first home buyers will be able to be assisted by the Guarantee schemes.

The budget expands the first home super saver scheme (FHSSS) introduced in 2017–18. From July 2022, eligible first home buyers will be able to withdraw up to $50,000 from any voluntary top-ups they have made into their superannuation above the compulsory super contributions - previously capped at $30,000.

Notably, the FHSSS differs from the model advocated by some MPs – compulsory superannuation contributions cannot be released; only voluntary contributions made by aspiring first home buyers can be used. Salary sacrificing income in the FHSSS can be a big tax advantage for high income first home buyers who would otherwise pay a higher rate of tax on their income.

While supporting first home buyers is commendable in the face of growing unaffordability of housing, the budget continues rather than boosts support for homelessness, social housing, and renters.

In another policy linking home ownership and superannuation, a downsizer scheme enabling older Australians who sell their home to make a one-off $300,000 contribution to their super ($600,000 for couples), outside the concessional rules. The 2017-18 budget made this available to those aged 65 – from July 2022 this will extend to age 60. The scheme is intended to both bolster retirement savings and release housing stock.

Announced ahead of the budget, the HomeBuilder six-month construction commencement period has been extended to 18 months, to smooth out construction pipelines. Higher than anticipated demand has seen supply chain and labour shortages impede commencements, risking increased construction costs.

While supporting first home buyers is commendable in the face of growing unaffordability of housing, the budget continues rather than boosts support for homelessness, social housing, and renters.

The budget includes $124.7 million for states and territories to meet their responsibilities for Equal Remuneration Order supplementation for homelessness services, continuing the approach brought about by a 2011 Fair Work ruling.

There have been widespread calls from community sectors and industry for economic stimulus through a national social housing construction program. The Australian Government’s approach to social and affordable housing supply is through NHFIC’s Affordable Housing Bond Aggregator, which provides loans to community housing providers. The loans are funded by wholesale capital markets through NHFIC bonds, backed by government guarantee. This approach is unchanged in the budget.

There are over 478,000 low and very low income households across Australians in unaffordable rental housing. Commonwealth Rent Assistance (CRA) is provided to eligible renters getting a Centrelink payment. CRA payments to low-income renters are insufficient to achieve affordability because the value of CRA has fallen behind rent. There remains scope for improved targeting so that CRA entitlements more closely match the needs of different households and housing markets across Australia.