2017 Budget to tackle rental affordability

Morrison: increase housing supply by making long-term rental investments more attractive.

Budget 2017: Housing

The Treasurer has called for greater investment in affordable housing to combat pressure on the rental system caused by skyrocketing property prices.

In a speech delivered on Monday to the Australian Housing and Urban Research Institute, Treasurer Scott Morrison has outlined what he sees as the key issues and challenges in the housing sector in the lead-up to the Federal Budget. With a focus on rental affordability, the government is hoping to pivot the discussion away from policies that impact property prices to dealing with the flow-on effects of the housing price boom.

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Trickle-down housing pressure

Citing research by CHOICE, the National Association of Tenants' Organisations and National Shelter, the Treasurer says housing prices in Sydney and Melbourne are causing people on higher incomes to remain in the rental market longer, causing a "concertina effect" that's impacting those on lower incomes.

"Over half of renters say they rent because they can't afford to buy their own property," says Morrison. "Because of this, they are staying in the rental market for longer – a dynamic that puts upward pressure on rental prices and availability, and even more pressure on lower-income households, increasing the need for affordable housing."

Increased demand for rental properties, driven by would-be homeowners being locked out of the market, has led to rising rents, making it even harder to save for a deposit.

"It is a statement of the obvious that you can't help first homebuyers save for a deposit by implementing policies that increase their rent," says Morrison.

Housing affordability "all about supply and demand"

According to the Treasurer, the answer to rental affordability is increasing the amount of rental stock.

The focus of property investment in Australia is capital gain, rather than yield – meaning investors make more money from selling a property that has increased in value than they get from rental income. As a result, there is little incentive for investors – particularly "mum and dad" investors – to hold onto investments for longer.

To arrest the pressure being put on those on lower incomes, the government is looking at funding arrangements for the affordable housing sector, which sees limited investment due to low rate of returns.

"Mum and dad investors are putting a roof over the head of around a quarter of all renting households in this country," says Morrison. "Keeping them in our private rental market is important for ongoing rental supply."

"However, attention must also be paid to how rented residential real estate can be better structured to provide more opportunities for institutional involvement."

The Treasurer points to the situation in the UK, where the social and affordable housing sector owns 18% of housing stock, compared to about 5% in Australia. The government issues bonds to provide cheap, long-term finance to community housing providers, a model that has existed in the UK for 30 years.

Morrison says superannuation funds would also be encouraged to invest in affordable housing for key workers: "What could be more in the interest of nurses, teachers or police pension fund members than investing in affordable housing for nurses, teachers and police officers?"

Changes to negative gearing "would not be good news" for renters

In the speech the Treasurer again dispels rumours that the government was considering changes to negative gearing, saying that any changes would cost renters.

"If mum and dad investors were not part of our private rental market, there would be fewer rental properties available, meaning higher rents, further crowding out of those on lower incomes and even greater pressure on already overstressed community and social housing resources," he says.

"Regardless of one's opinions of the merits or otherwise of negative gearing, it is an established and structural component of Australia's housing markets. Disrupting negative gearing would not come without a cost, especially to renters, let alone the wider economic impacts."

"This would not be good news for the 30% of Australian households who rent."

The Budget will be delivered on 9 May.

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