RateCity.com.au
powering smart financial decisions

How can we fix the housing affordability crisis?

How can we fix the housing affordability crisis?

It seems as though there is no hotter topic than the housing affordability crisis and what needs to be done to solve it. From the endless news articles to the discussions had in homes around Australia, it’s a problem that strikes right at the heart of the Australian dream of property ownership.

But with the issue not going away anytime soon all that hopeful first time buyers can do is keep an eye on the solutions proposed and add their voice to the discussion where they think a difference can be made.

Find out about the solutions that have been proposed to the housing affordability crisis below.

Limit negative gearing

The Australian Labour Party has been very vocal in pushing for changes to the current negative gearing system that allows investors to claim loses on their investment property as a reduction on their taxable income. This ultimately reduces the amount of tax paid by these investors and acts as an incentive to stay in the property investment game.

The issue for first home buyers with all of this is that the more investors are encouraged to continue investing in property, the higher property prices will be pushed up and the harder it will be for those without property to get a look in.

The ALP is proposing to limit negative gearing to new housing only from July 2017. This will not affect people who currently negatively gear a property. Read more about the pros and cons of negative gearing here.

Medium density housing

Terrace Houses, coastal New South Wales

Named “the missing middle” this type of housing includes townhouses, terraces, dual occupancies and manor homes. The NSW state government in particular has recognised the role that medium density housing can have in opening up property in Sydney to first time buyers and is currently accepting submissions on their proposal to make this a reality.

The government aims to make it easier to get approval for these types of dwellings in order to contribute more options to buyers who want to live close to the city at an affordable price and increase overall supply. It will also help to provide suitable housing alternatives for empty nesters living in established suburbs who are looking to downsize and yet still stay in the area they are used to.

It is hoped this will open up some great family sized homes to younger Aussies and allow for generations of families to live side-by-side in the suburbs they love.

Open up super accounts

Another proposal that has been floated is that first home buyers should be able to access their super fund savings to put down a deposit on a home. This solution, however, raises immediate red flags as it goes against the very purpose of super which is of course to assist in funding retirement. Using this money to buy a property may seem like a good short term solution but can have serious negative repercussions in the long term.

What has been approved by the ATO, however, is that a self-managed super fund holder can use their funds to purchase a property that is then rented to a family member as long as the fund owns less than 50 per cent of the property. This was only made possible this year and provides an opportunity for family members to invest in property together.  

Rentvesting

Rentvesting is the only solution proposed that doesn’t require any government intervention and is currently being used by first home buyers. This is the term coined for when a home buyer purchases a property in an affordable area and rents it out while renting another property in the area that they wish to live.

Renting vs buying: The costs and fees

While this isn’t a viable solution for all home buyers, it has helped some Australians get a foot in the door of an otherwise impossibly expensive property market. Whether or not this will turn out to be a long term trend, with home owners never buying into the area in which they live, will remain to be seen. Although for now, it is one of the last options available to those who still want to claw their way onto the property ladder.

Did you find this helpful? Why not share this article?

Advertisement

RateCity
ratecity-newsletter

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the RateCity Privacy Policy, Terms of Use and Disclaimer.

Advertisement

Learn more about home loans

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay.