As part of UDIA National’s ongoing engagement with policy makers and regulators, we met the Reserve Bank of Australia (RBA) on Monday to discuss the state of housing markets and lending conditions, and then with the National Housing Finance and Investment Corporation (NHFIC) on Tuesday to discuss the design of the Federal Government’s forthcoming first home buyer “deposit guarantee” scheme.
RBA Meeting
The meeting was hosted by the Assistant Governor – Economics, and I was joined by UDIA National Vice President Simon Basheer and National Executive Director Connie Kirk.
UDIA National’s feedback for the RBA was informed by extensive member feedback collated by UDIA State offices, that also allowed us to present detailed “on-the-ground” information on conditions in the various jurisdictions and regions.
Over a period of an hour, we were able to provide the RBA with insights on current themes and trends in housing markets and pricing, access to finance for homebuyers, future development pipelines and other critical issues.
The main themes we impressed upon the RBA were:
- Despite the RBA’s recent cuts to interest rates and APRA’s reforms to loan serviceability assessments, access to credit remains tight for homebuyers and the development industry is yet to see evidence of a clear trend of increased buyer activity;
- The headline numbers on house prices suggests a stabilisation or marginal increase in established house prices, but this is yet to flow into prices for newly-constructed product and greenfield land & housing markets;
- There is a real risk that the subdued number of development approvals being issued at the moment masks an even more dire scenario – with a substantial portion not being converted to development commencements, and development pipelines continuing to thin.
This has implications not just for our industry but suggests that the broader economic effects of lower construction and supply chain activity will be felt for some time.
There were a host of other issues canvassed including inefficient planning systems acting as a brake on activity, first home buyer activity, infrastructure spending & delivery, and labour costs. Suffice to say, the public commentary the RBA has issued about the need to spur growth in the economy means our over-arching narrative resonated with those in attendance.
NHFIC Meeting
On Tuesday, we met with the CEO and Director, Strategy & Operations of the National Housing Finance and Investment Corporation (“NHFIC”). Although the NHFIC was initially established as the “bond aggregator” for the community housing sector around Australia, following the federal election they’ve been charged with the architecture and implementation of the Government’s first home buyer deposit guarantee scheme. This was the second time NHFIC has sought on our views on the initiative.
Whilst the intent of the scheme – enabling more people into first home ownership – is laudable, it’s clear that the details and implementation are being assembled swiftly in readiness for a relatively quick 1 January 2020 launch date.
As such, many details of the scheme remain unresolved, and NHFIC wasn’t in a position to provide substantive responses or commitments to UDIA’s recommendations for the scheme. It’s also clear that the Government is keen to ensure enthusiastic take-up of the 10,000 “allocations”, and as such some of our recommended targeting measures will likely not be adopted in the initial phase of the scheme.
We have provided detailed feedback and recommendations to NHFIC on a range of aspects of the scheme, with a summary our key points as follows:
| UDIA Position / Recommendation
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NHFIC Response / Current Intention
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UDIA Comments
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| The scheme should only be available to those purchasing newly-built properties | The initial 10,000 allocations will likely be made available for those purchasing both new and established to ensure strong initial take-up | This is a potential “lost opportunity” in terms of stimulating economic activity etc, and risks artificially re-inflating established housing markets. |
| The proposed income “caps” of $125,000 for singles and $200,000 for couples / families are too low to enable buyers to access some markets (mostly Sydney & Melbourne).
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At this stage, the Government has not adopted the recommendation – but there is still potential to do so as the investment mandate is developed | Given that the scheme is enabling first home buyers to enter the market with 95% mortgages, solid incomes to support mortgage servicing is essential.
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| The scheme will be most efficiently operationalised via home lenders (who already conduct income verification and serviceability assessments) – with both banks and non-banks able to participate on behalf of borrowers | NHFIC acknowledged UDIA’s position re home lenders as the mechanism to operationalise the scheme and took on board UDIA’s comments re Banks and non-banks participating | UDIA supports the implementation of the scheme as quickly as possible, and therefore supports measures which will result in maximum efficiency and “speed to market” |
| Government has an opportunity to geographically target areas in which it seeks to stimulate economic activity, by adjusting the proportion of allocations on a city-by-city and region-by-region basis | The political imperative for initial success will probably see the scheme operate on an “open” basis for the first 10,000 allocations – but any (possible / not guaranteed) extension of the scheme may look at geo-targeting of allocations | UDIA provided analysis of affordability across state and regional boundaries informed by Core Logic data to help guide where purchasers are likely to reside and see this as a potential lost opportunity in terms of also stimulating economic activity and linking house purchasing and job creation. |
NHFIC also sought our feedback on whether a property price “cap” should apply to the scheme, as this would likely be politically desirable. We suggested that the scheme could be targeted at those purchasing properties up to the median house price in a particular capital city or region. This would be a preferable – and would make a greater proportion of the market accessible – to NHFIC’s alternative consideration of limiting the scheme to the first home buyer stamp duty concession threshold which many jurisdictions have in place.
As a general principle, UDIA considers that, whilst the scheme is a worthwhile one, it should be remembered that it’s encouraging a cohort into the market who would otherwise have an insufficient deposit to purchase, or would have to bear the significant cost of Lenders Mortgage Insurance. By definition therefore, this will result in mortgages with relatively high Loan-to-Value Ratios, and it’s therefore preferable that these borrowers have good incomes to support these relatively larger borrowing commitments.
For these reasons, UDIA advocates for an increase of the income caps applicable to the scheme – bearing in mind that it’s restricted to genuine, owner-occupier first home buyers. Surely an “asset-poor, income-rich” young them should be encouraged into first home ownership, and not excluded from the scheme?
UDIA also believes that making the scheme available to purchase established property is an unfortunate policy decision – it’s a “lost opportunity” in terms of the economic stimulus and multiplier effect that new construction brings, and it risks artificially inflating the lower end of the established market for no good reason. We will continue to advocate for this important aspect of the scheme to be optimised.
We look forward to keeping you briefed on these matters and more in coming weeks.
Darren Cooper
UDIA National President