‘Inviting a crash’: Ominous housing warning
PRIME Minister Scott Morrison has warned a popular idea to help Australians buy their own homes could actually "invite a housing market crash".
A vow to limit negative gearing to newly built homes is the centrepiece of Labor's housing proposals. It also wants to halve the 50 per cent capital gains tax discount.
Bill Shorten claims the current government's policies give investors an unfair advantage over first home buyers, and overwhelmingly benefit people with high incomes.
But in an exclusive interview with news.com.au, Mr Morrison issued an ominous warning about the Opposition's alternatives.
"The risk is this," the Prime Minister said. "If you now take the sledgehammer of negative gearing and capital gains tax changes - if you abolish negative gearing as we know it - then you're inviting a housing market crash. And that's good for nobody."
Mr Morrison defended the government's policies, saying they had helped property prices fall in a controlled way.
"We've seen house prices come back to a soft landing, and that's not me saying that, that's ratings agencies, it's the Reserve Bank," he said.
"Everyone has recognised that one of the biggest economic risks that the country faced was a housing market crash. That's what the ratings agencies were concerned about, that's what the banks were concerned about, that's what economists all around the country were concerned about. That's what, as treasurer, I was very concerned about. So we needed to bring the housing market into a soft landing."
House prices in Australia's five capital cities have fallen an average of 3.5 per cent in the past 12 months, with the sharpest drops in Sydney and Melbourne.
That's a welcome trajectory for many Australians who felt they were being priced out of the market after almost a decade of consistent and demoralising rises.
"We've got first home buyers now back up as a percentage of new loans to its best level in about five, six years. And a number of things have contributed to that," he argued.
"One of the things I did as treasurer was to introduce the First Home Super Savers scheme, which we need to continue to let people know about.
"I think it's a pretty simple and constructive scheme which means that people can save for their deposit faster, simply by making the same sacrifice they're already doing today."
The scheme lets Australians save for a home deposit using their superannuation account, which means they pay less tax.
"You can save, with exactly the same salary sacrifice, 30 per cent faster than you could before," the Prime Minister said.
Mr Morrison also highlighted the government's work with the Australian Prudential Regulation Authority (APRA) to crack down on interest-only mortgages, which made up about 40 per cent of all new home loans at their peak last year.
"When you get people who can just keep borrowing more and more and more and do it on an interest-only basis, they can bid up the price, and that was fuelling the exacerbation of the problem," he said.
But despite those improvements, buying a house in one of Australia's biggest cities is still a daunting prospect.
RateCity.com.au recently released data on the average annual income needed to buy a house or unit in each city without mortgage stress - a term for when 30 per cent or more of your pre-tax income goes towards loan repayments.
The required income was $162,000 in Sydney and $132,000 in Melbourne. Those figures are well above the average Australian's salary.
"That's an extremely big amount of money. And in Sydney, a 20 per cent deposit plus stamp duty is a whopping $240,000. It's impossible to collect in a short space of time," research director Sally Tindall told news.com.au.
There is also the added pressure of interest rates. In the past few weeks Westpac, the Commonwealth Bank and ANZ all pushed up their variable rates, though NAB decided not to join them.
"Look, you don't want to see that occur. That's the banks that decide to do that, but the NAB decided not to, so good for NAB. Go and change your loan to NAB, that would be my view," Mr Morrison said.
"It's for the RBA to decide what's happening with the cash rates, but you know, their forward prognosis has been very stable now for some period of time. So I think there will be a lot of pressure on the banks not to move their rates."
The Prime Minister said his government supported allowing new banks into the market to challenge the Big Four.
"More products. Increasing pressure. Make the market work, make sure people get the best deal," he said.
Mr Morrison said he sympathised with the plight of first home buyers struggling to get into the market.
"I remember the first place I bought with (wife) Jenny, it was 53 square metres, it was not very big. It was very, very small. But that was what we could afford, and that's how we made our start. And it's always a big challenge for anyone to buy their first home," he said.
Should Australians consider following that example, and lowering their own expectations for a first home? Mr Morrison told us he didn't want to "lecture" anyone.
"I'm for Australians setting their own expectations. I'm all for aspiration. I'm all for them having a big view of their future, and for us to be able to help them try to achieve that wherever they can," he said.
"I'm not one who likes to lecture people about what their aspirations should be. I'm all for an aspirational Australia."