Speech to Abacus Mutual Banking Sector Forum
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I would like to begin by respectfully acknowledging the traditional owners of the land on which we are gathered today, the Gadigal people of the Eora Nation.
Thank you Louise (Petschler, Abacus CEO) for your introduction, and thank you all for inviting me to speak with you today.
I welcome this opportunity to speak to the mutual banking sector, acknowledging the choice and competition that Abacus members bring to the home lending market.
You have an important role to play as the Government progresses its housing reform agenda, particularly our First Home Saver Accounts.
The Government’s commitment to housing affordability is no accident.
Housing is central to our social and economic agenda because we listened to what the community told us – in their letters, emails and in meetings around the country.
We listened to potential home buyers, developers, builders, local government and community groups – and everyone was saying the same thing.
People told us that access to secure and affordable housing was fundamentally important to the everyday lives of all Australians.
They said that there were problems that required national leadership to be fixed.
We also heard from people who were doing it so tough they had been forced to cut back in many areas to make ends meet.
Housing policy was not a priority for the previous government, and we have inherited some challenges.
Improving housing affordability is a priority for the Australian Government.
The May Budget included $2.2 billion worth of new investment to address housing affordability.
It was the first Commonwealth Budget in over a decade to include a serious housing reform agenda.
One of these new measures, the Housing Affordability Fund, aims to improve the efficiency of housing construction.
While some the States and Territories have made a start in streamlining development processes, I agree that there is much to do if we are to have a genuine impact.
This $512 million initiative aims to lower the cost of building new homes by cutting red tape and reforming infrastructure and planning systems.
Money will be targeted to areas with high demand for new housing, and can be used for both green-field and in-fill developments.
Applications will be assessed against transparent, needs-based selection criteria, and applicants will have to demonstrate how cost savings will be passed on to new home buyers.
We also need to improve the efficiency of the planning and development paper trail – to drag it into the 21st century by making it quicker, more accessible and more user-friendly.
That is why the Government has allocated $30 million from the Housing Affordability Fund to fast track the national roll-out of an electronic development assessment (eDA) system to make use of 21st century technology to replace a 19th century system.
We also need to make sure that a good proportion of housing supply is available to low and moderate income earners, including renters.
Research by the National Centre for Social and Economic Modelling (NATSEM) tells us that 685,000 low and moderate renting households are spending more than 30 per cent of their income just to pay the rent.
The Government’s $623 million investment in a new National Rental Affordability Scheme will increase the supply of affordable rental dwellings by creating 50,000 affordable rental properties for low and moderate income earners in its first four years, and another 50,000 after 2012 if demand remains strong.
Our aim with this new program is to create an incentive for the market to invest and build large portfolios of affordable rental housing.
We have also established a National Housing Supply Council to forecast future housing need and identify gaps between demand and supply.
The Council will publish an annual State of Supply report to analyse the adequacy of construction rates and land supply across Australia for the next 20 years.
It will examine issues like demographic change, the impact of migration, market distortions, construction and availability of housing, structural barriers to the release of land and zoning approval, and the construction of new housing.
If all levels of government can work together to better target housing supply to meet demand, then we can go a long way to improving housing affordability.
First Home Saver Accounts
With the price of houses today, and rents what they are, one of the biggest barriers to entering the housing market is saving an adequate deposit.
Consider the statistics:
- The average first home mortgage has more than doubled in less than eight years, from $123,000 in December 2000 to $243,100 in June 2008.
- Fewer low and moderate income earners are becoming first home buyers – 17.6 per cent of first home buyers came from the bottom 40 per cent of earners in 2005-06, compared to over 20 per cent from this group in 1995-96
- Households in the bottom 20 per cent of earners who are lucky enough to achieve home ownership are spending two-thirds of their income to pay for the privilege.
- First home buyers now take much longer to pay off their mortgage – in 2005-06, five per cent of households who had recently bought their first home did not have a mortgage, compared to 18 per cent in 1995-96.
The difficulties faced by first home buyers prompted the government to introduce First Home Saver Accounts.
I understand this initiative is of particular interest to Abacus members and that this forum will further discuss these accounts later.
There has already been strong interest in the new accounts.
Alongside major banks, five credit unions have already notified Australian Prudential Regulation Authority of their intention to offer the accounts.
There is a strong business case for financial institutions to provide these accounts.
Institutions will have the chance to establish a relationship with account holders that may well flow through to future lending – particularly when the time comes for people to get a mortgage.
The Government is investing $1.2 billion in this important new initiative.
The accounts will help aspiring first home buyers save a bigger deposit to purchase their own home through low tax savings accounts.
The Government will provide a 17 per cent contribution on the first $5,000 of individual contributions made each year.
This means that anyone who contributes $5,000 to their account will receive an $850 deposit from the Government.
Contributions will not be subject to tax when contributed to an account and interest on the accounts will be taxed at 15 per cent rather than the account holder’s marginal rate.
This mirrors the tax treatment provided to superannuation, ensuring that young Australians get similar support to buy a first home as older Australians get to help save for retirement.
A couple on average incomes who each save 10 per cent of their incomes will save a deposit of more than $88,000 in five years.
Eighteen year olds in their first jobs can start off putting as little as $10 or $20 a week into a First Home Saver Account and increase their contributions as their pay increases over the years.
By the time they are in their late-20s or 30s and are thinking about buying a house – perhaps with their partner – they will have a nice little nest egg.
Not only does this help first home buyers, it also puts downward pressure on inflation by building national savings.
By 2012, we anticipate there will be more than $6.5 billion saved in these new accounts.
Treasury has consulted industry through a Technical Reference Group.
Authorised Deposit Taking Institutions including banks, building societies and credit unions can offer First Home Saver Accounts as deposit accounts.
Trustees holding a Registrable Superannuation Entity Licence to operate public-offer superannuation funds will be able to offer First Home Saver Accounts.
Only public-offer licensees, life insurers and friendly societies will be able to offer investment-linked accounts.
Generally, existing financial product providers will not need to seek a variation of the Australian Financial Services Licence.
The final policy design has simplified the overall operation of First Home Saver Accounts for individuals, account providers and the Australian Tax Office.
These changes make it easier for account providers to offer the accounts and for account holders to understand how they operate.
Prospective account holders can choose the account that is appropriate for their circumstances and their appetite for risk.
The changes removed the proposed $10,000 annual cap on contributions, and replaced it with an overall account balance cap of $75,000, which has been indexed to growth in Average Weekly Ordinary Time Earnings.
The Government recognises that First Home Saver Accounts may not be suitable for all prospective first home buyers, including those who plan to purchase within four years.
We believe that the arrangements strike an appropriate balance between assisting those saving for a first home and providing incentives for individuals to save over the medium term.
Making housing more affordable is an important issue for all of us: government, business and the general community.
I commend those organisations that are already actively engaging in community and affordable housing initiatives.
It is essential that we all work together and do our bit to help improve housing affordability for Australians and their families.
Financial institutions have an important role in the housing sector as lenders to home buyers, and I recognise in particular the work of credit unions and mutual building societies in this area, and look forward to your participation in new initiatives like First Home Saver Accounts.
Our new First Home Saver Accounts and other housing programs demonstrate that there is now a commitment within Government to positive, creative new initiatives that improve affordability.
I hope that we can continue to work together to develop new solutions to help improve housing affordability for Australians and their families.