Tax a cause in new house unaffordability for first time buyers

Never forget that house prices are determined by the simple forces of supply and demand. Supply depends on planning laws, land releases and the speed at which new homes can be built. Demand is driven by population growth, immigration, consumer confidence and, above all, borrowing capacity. The more people can borrow, the more they can afford to pay, and that extra purchasing power is quickly reflected in higher house prices.

Migration also fuelled demand. Between 2007 and COVID, net overseas migration averaged about 233,000 people a year. It then surged to a record 563,000 in 2022-23, placing even more upward pressure on house prices.

But the biggest driver was borrowing capacity. In 2007, mortgage rates were around 8 per cent and banks were far more conservative than today. Buyers could generally borrow only what their incomes would support.

The Global Financial Crisis changed everything. The Reserve Bank slashed interest rates, dramatically increasing borrowing capacity and pushing house prices higher. Although rates later recovered somewhat, they never returned to pre-GFC levels before another easing cycle began. Then, between 2017 and 2019, APRA tightened lending standards. Maximum loan sizes fell and Sydney house prices declined despite rising wages, proving that the availability of credit can matter just as much as its cost.

COVID delivered another enormous boost. The Reserve Bank cut the cash rate to 0.10 per cent while governments unleashed unprecedented stimulus. Mortgage rates fell below 2 per cent, households accumulated record savings, working from home increased demand for larger homes and fear of missing out swept through the market. The HomeBuilder scheme added further demand just as supply chains and labour shortages drove building costs sharply higher. Cheap credit, government stimulus and FOMO combined to produce one of the biggest housing booms in Australian history.

Successive governments then continued to fuel demand through low-deposit guarantee schemes and shared-equity programs under which the Government became a part-owner of the home. Whatever their good intentions, these schemes increased buyers' purchasing power without creating a single additional dwelling.

The lesson is obvious. When more people have the capacity and confidence to compete for a limited number of homes, prices rise. Tax settings may influence the market at the margin, but the dominant drivers over the past two decades have been interest rates, credit availability, government stimulus, population growth, migration and simple human psychology.

Interest rates lit the fire. Governments then poured petrol on the flames.

Even if interest rates had never fallen, housing would still have become far less affordable because governments have quietly transformed new homes into one of their biggest revenue sources.

In 1976, taxes, fees and regulatory charges made up less than 10 per cent of the cost of a new house-and-land package. Today, depending on where you live, governments are taking between one-third and one-half of the total cost. In Sydney, the figure is approaching 50 per cent.

Not bricks. Not timber. Not labour. Just tax.

Half the cost of a new home in Sydney flows into government coffers before the family even walks through the front door. Over many years, governments at every level shifted the cost of infrastructure away from the general tax base and onto new housing. Developer levies, infrastructure contributions, stamp duty, GST, environmental requirements, planning charges and compliance costs have accumulated until affordability has buckled under the weight.

According to HIA research, government charges now account for roughly one-third to almost one-half of the cost of a new home, depending on the city. That means many first-home buyers are borrowing hundreds of thousands of dollars simply to pay embedded government taxes, charges and compliance costs. They then spend decades paying mortgage interest on that tax burden from income that has already been taxed once before.

What makes this even more frustrating is that governments continue to announce first-home buyer grants, shared-equity schemes and guarantee programs that supposedly improve affordability while simultaneously maintaining the taxes and levies that helped create the problem. It is the economic equivalent of punching someone in the face and then offering them an ice pack.

The solution starts with honesty. Governments need to stop pretending housing taxes are separate from the affordability problem when they are one of its major causes. Every levy, charge and regulatory impost attached to new housing should be tested against one simple question: should this cost really be loaded onto first-home buyers?

Infrastructure that benefits the whole community should be funded by the whole community, not disproportionately by younger Australians trying to buy their first home. The next time a politician claims to care about housing affordability, ask one simple question: if governments are really serious about making housing cheaper, why do they take up to half the price of a new home in taxes, charges and compliance costs?

Question: I've just turned 60 and have a substantial super account with Australian Retirement Trust. I'm working three separate jobs and have been told that if I retire from one, I can access my super. What documentation would ART need, and how long should the process take?

Answer: An ART spokesperson says that once you turn 60 and leave an employment arrangement, you have reached your preservation age and met a condition of release. This allows you to access your super by starting an account-based pension (such as ART's Retirement Income Account), purchasing a lifetime income stream, or withdrawing your accumulation balance.

You do not need to provide evidence that you have retired from that job. However, you must complete the relevant form in the Product Disclosure Statement or apply via Member Online. Proof of identity is required, but this can usually be done electronically using your passport or driver licence together with your Medicare card, so certified copies are often unnecessary.

Once ART receives the completed forms and funds are available, it currently takes about five business days to open a Retirement Income account or receive a withdrawal from an Accumulation account.

Question: I am aged 70 and currently receive income from a super fund as well as a Centrelink part pension. My wife is 60 and has a super fund which is currently exempt from Centrelink and does not affect my pension, as she is under pension age. My wife is a retired hairdresser. She does not work, although she earns a small amount of pocket money. Due to problems with her hands, she is considering starting an income fund from her super.

Will commencing an income fund from her super affect my Centrelink pension, particularly in relation to the assets test, and will her income be added to our assessable assets?

Answer: As soon as she starts drawing a pension from her super fund, it will no longer be exempt for age pension purposes. A much better option is to leave the fund in accumulation mode until she turns 67 and simply make withdrawals as needed in the meantime.