2017-2018 Federal Budget Expert Analysis - Housing Affordability

Key points

  • First home buyers can salary sacrifice into their superannuation account

  • Up to $300,000 from the proceeds of the sale of the family home can be contributed to superannuation for persons aged 65 and over

  • Increasing the CGT discount to 60% for investments in affordable housing

  • Allowing managed investment trusts (MITs) to be used to develop and own affordable housing

  • Further initiatives to increase housing supply

Housing affordability is one of the key areas in the 2017-18 Federal Budget.  Numerous measures have been announced to improve housing affordability by boosting housing stock while encouraging investment in affordable housing by providing incentives.  Significantly, the Government has announced that negative gearing will be retained, per the Treasurer “supporting the supply of rental housing and placing downward pressure on rents”.

To assist first home buyers save for their first home, a new savings scheme has been announced allowing first home buyers to salary sacrifice up to $15,000 per year and $30,000 in total in voluntary contributions to their superannuation account.  Contributions can be made from 1 July 2017 and are subject to existing contribution caps.  Contributions will be taxed at 15% instead of the taxpayer’s marginal tax rate and withdrawals will be taxed at their marginal rate less 30%.  Withdrawals will be allowable from 1 July 2018.  Couples can combine their savings for a single deposit.

For older home sellers, from 1 July 2018, downsizing will be encouraged by allowing people aged 65 or older to make a non-concessional contribution of up to $300,000 to superannuation after selling their family home.  This amount is in addition to any other contributions they are eligible to make.  The contribution is exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.

The sale must be of a principal residence that has been owned for the past 10 or more years, which will limit the effectiveness of this measure.  Where a couple jointly own the family home, they will each be able to make a contribution up to $300,000.

To encourage investment in affordable housing the CGT discount will be increased from 50% to 60% for resident individuals who elect to invest in qualifying affordable housing.  Affordable housing refers to housing provided to low to moderate income tenants with rent charged at a discount below the private rental market rate.

To obtain the additional CGT discount, the affordable housing must be managed through a registered community housing provider and the investment must be held for a minimum of 3 years.  This additional 10% CGT discount does not apply to investments held via superannuation funds or trusts (unless it is a Managed Investment Trust (MIT) as outlined below).

MITs will be able to set up to acquire, construct or redevelop property to hold as affordable housing, in an attempt to attract both foreign and domestic investors.  Certain requirements apply, including the properties must be available for rent for at least 10 years and the MIT must derive at least 80% of its assessable income from affordable housing.   The remaining assessable income may be derived from other eligible investment activities permitted under existing MIT rules.

Where foreign residents invest in an MIT, the withholding rate will be capped at 15% if the foreign resident is from a country with an exchange of information arrangement with Australia.  Net capital gains arising on properties held for less than 10 years will be subject to a 30% withholding rate.

The CGT discount increase to 60% for resident individuals will also apply to investments held via an eligible MIT.

Other measures to boost supply include:

  • The introduction of an annual foreign investment levy on foreign owners of residential property where the property is not occupied or genuinely available for rent for at least 6 months of the year. The levy will be equivalent to the relevant foreign investment application fee imposed on the property at the time of acquisition.

  • Establishment of a $1 billion National Housing Infrastructure Facility to remove infrastructure impediments to developing new homes and apartments.

  • Surplus Commonwealth land will be made available for housing development.

  • Long term, low cost financing will be provided to community housing providers through a new National Housing Finance and Investment Corporation (NHFIC). It is envisaged the NHFIC will assist in attracting large scale investors, including superannuation funds, into the affordable rental sector.


LexisNexis Capital Monitor Summary:

The Government is approaching the problem of housing affordability from a number of angles. First, home buyers will be able to make contributions of up to $15,000 per year to their superannuation funds - to a total limit of $30,000 per person -, that can be withdrawn for a first home deposit. Contributions and earnings will be taxed at only 15 per cent, and withdrawals taxed at marginal rates less a 30 per cent offset. This initiative risks pumping more money into an overheated market, but may give first home buyers a small edge over property investors. Older Australians looking to downsize will be allowed to contribute up to $300,000 per person from the sale of their home as a non-concessional superannuation contribution. This measure is designed to free up underutilised housing stock, so may help with supply-side problems.

The Government will also address the housing supply issue by working with state Governments on setting construction targets, as well as zoning and planning reform. A new $375.3 million National Housing and Homelessness Agreement will increase the supply of housing, focusing on those most in need. A $1 billion National Housing Infrastructure Facility, based on a UK model, will fund deals with local governments to develop new housing on selected sites.

The Federal Government will also release surplus Commonwealth land for housing development. The first step in this process appears squarely targeted at the Leader of the Opposition - 127 hectares of surplus Defence land in Bill Shorten's electorate of Maribyrnong will be released for housing.