Policy Proposals for the 2019/20 Budget
May 16, 2019INTRODUCTION
The following comments are provided by the Housing Industry Association (HIA) for your consideration ahead of the 2019/20 South Australian State Budget.
Whilst new home building across Australia had reached record levels over recent years, growth in residential construction in South Australia (SA) has at best, remained stagnate and more recently has been in decline for 12 of the past 14 months. Latest data on approvals for detached houses has shown activity down by 5.8% compared to the previous 12 months with a similar story for apartments. HIA is forecasting a similar downturn for 2019/20.
Recently National numbers have receded substantially driven by falling demand in the Eastern States. This has been exacerbated by the fallout from the Banking Royal Commission with the major banks tightening their loan repayment criteria and valuations not meeting levels required for loan approvals. South Australia has not been immune from this and feedback from residential builders confirms these as being the most significant reasons for sales not proceeding to builds and time delays to starts with the normal two to three weeks for finance approval extending out to beyond two months.
A SURE SIGN OF A HEALTHY ECONOMY IS A STRONG DEMAND FOR RESIDENTIAL BUILDING
Apart from the obvious benefits to the building industry and construction employment arising from more homes being built, there are important social and economic dividends over the long term for the State. A larger housing stock would allow for more homes for the predicted increase in population growth in South Australia and the importance to the State’s economic prosperity cannot be underestimated, with for each new home built the equivalent of 5 full time jobs are created in construction and the consequent flow-on effect to other sectors (furniture, whitegoods etc.). There is also a substantial contribution to the States revenue from taxes and levies. More than 30% of a house and land package is made up of taxes, levies and charges collected across all levels of Government.
Greater levels of new homes built would reduce the likelihood of strong surges in rental costs and housing prices thereby maintaining South Australia’s competitive edge over the other States in terms of housing affordability.
Stronger levels of new home building would also make new homes more accessible to First Home Buyers (FHBs) and help boost rates of home ownership over the long term. It cannot be emphasised more that, as the structure of residential building activity is weighted heavily towards domestic inputs, with 90% of new house and renovation activity combined built by South Australian owned and operated businesses, the wealth created is retained within the State providing a significant contribution to the local economy.
HIA welcomes the State Governments achievements and progressive policies since gaining Government and particularly is encouraged by the push towards increasing the State’s population, boosting apprenticeships and traineeships and reducing taxes and Government charges, particularly for small businesses, but cautions that, without an increased demand for new housing these initiatives may falter.
Just announced, increased subsidies to apprentices and host employers by the Federal Government, coupled with the States commitment to increasing apprentice numbers by 20,000 over the next four years, are transformational initiatives that could secure for the future, a young and highly skilled workforce for the residential construction industry however, the reality is, for every new apprentice there needs to be a job vacancy and for that to occur there will need to be a significant increase in residential building activity.
PROPOSED MAJOR DEMAND STIMULUS IMPERATIVES
Housing Construction Grant
To boost an ailing residential building industry, a construction grant similar to that introduced in 2012/13, which provided much needed demand for new homes, saving thousands of jobs and providing a significant boost to the economy, should be provided. HIA recommends a $10,000 Housing Construction Grant for new homes and home additions, which will stimulate all sectors of residential building.
This initiative has a short to medium term benefit of stimulating the market to counter the current depressed market and will have the capacity to “fill the gap” until projected wider economic growth occurs lead by future major projects (defence/shipbuilding industries etc.) and more broadly, predicted population growth, leading to demand for housing.
Stamp Duty Exemptions for First Home Buyers (FHB’s) for Land Purchases
South Australia (12%) falls way behind the National average (18%) for FHB home purchases. To boost this sector HIA recommends a Stamp Duty exemption on a land purchased to build a new home.
This saving to the FHB will provide a much needed incentive to close the deposit gap on the total house/land purchase and provide a significant boost to new home construction as has been the case in Victoria where a similar scheme has provided a significant boost to both metropolitan and regional areas, with a dramatic increase of 36.6% on the previous 12 months.
Government should also consider providing targeted stamp duty concessions, similar to that provided earlier for apartment purchases, for detached housing in designated areas, for example, Playford, Mt Barker and regional areas to boost demand for new builds and established homes which will also have the effect of raising the price of established homes leading to improved valuations of new builds.
Direct Government Investment in Social Housing
The previous Governments 1000 homes in 1000 days increased social housing stocks (and the States property portfolio) housed thousands of disadvantaged and needy South Australians and was structured to increase the number of small and medium size building companies into the social housing market. A similar scheme would provide additional affordable housing to that currently being developed by the community housing sector who engage mostly with tier one and large builders and boost the wider residential building sector.
OTHER STIMULUS MEASURES FOR CONSIDERATION
Deposit Gap Loan
Often the deposit gap (difference between a potential new home purchaser savings and the amount required to meet the financial institution lender requirements) is all that prevents a new build from going ahead. HIA proposes that a Government loan, secured by the property, be repaid under a similar arrangement to the HECS debt. As income increases, debt can be paid down, if the property is sold the loan would be repaid to the Government. Once the scheme has become established, funds returned to the Government could be set aside to further expand the scheme.
Joint Equity Scheme
HIA recommends a shared equity initiative similar to the HomesVic Scheme introduced in Victoria. This scheme allows FHB’s to purchase a home and qualify for a loan with a deposit of 5%. The scheme supports applications for home loans with participating banks by contributing to the deposit amount of up to 25% of the property’s value. When the property is sold, the proportional beneficial interest is paid to HomeVic and the Government reinvests the funds into other homes. In Victoria, the scheme was restricted to a maximum of 400 applicants.
Deferred/Moratorium on Levies, Fees and Charges
New home purchasers generally buy a block of land and then often spend a considerable period of time saving for a deposit for the build, selecting a builder, designing and planning their new home and then waiting for the necessary construction design and approval to be issued. During this time, the unoccupied land is attracting numerous levies, fees and charges for example; Water and Sewer Rates, Council Rates, Emergency Services and Natural Resource and Environment levies etc. for which no service is provided as the land is vacant. It is understood that some of these charges are not State Government however, it is suggested that the Treasurer work with the local councils and statutory bodies to provide relief to the land owners, allowing them to contribute more to the their savings.
Greater Availability of Access to Low Deposit Schemes
HIA recommends that the Government, through its Homestart Finance entity, provide a more flexible and supported position in relation to affordable home ownership similar to that provided by successive Western Australian Governments to their Keystart Home Loan facility for FHB’s. More than 100,000 low income people have been able to achieve home ownership by their low deposit scheme. Government should consider providing support to HomeStart with direct funding and underwriting of loans to boost home ownership. For example, underwriting the loan amount required for stamp duty for FHB.
In addition to the above imperatives, it is vital that the Government ensure that there is no further costs added to residential building construction. The reform of the States Planning System, underway since 2016 and being progressively rolled out from now until mid-2020, has the potential to add tens of thousands of dollars to the cost of a new build. It is vital that any reform initiatives be subject to a rigorous Cost Benefits Analysis to ensure that there is not a negative impact on the cost of residential building and land supply.
As highlighted above, valuations and financed approvals are currently proving to be a significant brake on the residential housing industry and although these are not necessarily within the State Governments remit, the consequences to the residential building industry and the broader economy should be recognised and action taken by way of stimulus measures as outlined above, to arrest a further decline in building activity.
The HIA calls on the Government to implement initiatives within the upcoming State Budget to stimulate the residential building industry.