The Daily Telegraph has revealed the Federal Government has decided to boost the contribution threshold on its First Home Saver Accounts.
For the 2010-11 tax year, if a first home saver contributes up to $5,500 to their account, the government will chip in the same 17% or $935 on $5,500. While the government indicated the scheme would be “periodically indexed”, the 2009-10 contribution threshold remained at $5,000, the same limit than in 2008-09 year earlier.
In an earlier post on the 22nd May 2010 we expressed our view that the government doesn’t really have any idea with the FHSA or affordability in Australia. Take-up has been poor due to too many restrictions, and we saw the $75,000 cap far too limiting if first home buyers were to require a deposit of 20%.
According to the Australian Tax Office, the new account balance cap for 2010-11 is $80,000 up from $75,000 for 2009-10 & 2008-09.
With this is mind, it is interesting to read The Daily Telegraph article :
Treasury figures showed a couple who opened a first home saver account in October 2008 would save more than $88,000 after five years by putting aside just 10 per cent of their income.
Bankwest analysis released this week suggested that Australian couples now needed an $85,800 deposit for a median-priced house in Australia, based on couples saving 20 per cent of their combined pre-tax income for 4.5 years.
The only way the couple could save that amount in their FHSA by October 2012 is if they opened separate accounts, otherwise they would hit the cap. This is actually a requirement of the FHSA, as accounts must be individual accounts, not a joint accounts. But it penalises anyone who wishes to purchase a house by themselves.
As BankWest analysis suggest, a single account holder wishing to purchase a home on their own now needs a $85,000 deposit for a medium priced home. The Australian Government must have their head in the sand regarding affordability if they think a $75,000 cap is adequate. A deposit of $75,000 is lucky to get you a medium priced home.
ยป $4000 home buyer bonus – The Daily Telegraph, 10th July 2010.
Seriously though, how are first home buyers meant to gather a quick $85k to get on the property ladder for a median priced house. I have been saving for at least 5 years and only have $75k through really hard saving and spending as little as possible. I think this highlights a huge problem that will surface in the next few months. Who are these first time buyers with thousands of dollars stashed under their pillows.
Lets be honest, no first time buyers have this kind of money, hence there will be little demand from this part of the market. Banks also want at least 20% deposit from property investors.
Pension & Insurers in the UK have recently said that people 65 and retiring now have started to realease the equity in their houses by selling them as they do not have enough pension money.
They reckon there will be a surge in the supply of housing over the next 10-15years which will cause a drop in house prices over this period.
I can see a similar thing happening in Australia.
Exactly!! Why do you think the Rudd government had this “Big Australia” plan? The whole plan was about keeping property prices inflated as this sell-off occurs, not about the fact we need a bigger population. With limited water and land available to grow food (due to drought) many environmentalists estimate that Australia only has a capacity of around 35 million at the moment based on current infrastructure. Most of this spare capacity is actually in Regional centres and rural towns as opposed to the big cities that are nearly already at breaking point.
In terms of saving $75k.. How is a first home buyer supposed to save this amount of money? Especially if they are currently renting and not living at home. Most people in the First Home buyers bracket would be lucky to earn upwards of $70,000 a year. Once you take out HECS and tax on that amount, it equates to about $22,000 in money witheld – leaving less then $50,000. Renting a one-bedroom unit in Melbourne costs upwards of $300 a week, so you are $15,000 down the hole on rent per year before you start saving. Overhead costs to pay utlities, private health insurance (which you need if you have more then $73,000) run a car, eat food, occasional social events, and maybe a one per year camping holiday are the best part of another $20,000 per year. This would leave $15,000 per year left over to save towards a deposit – even if you were the most prudent of savers and on $70,000.
Now.. Add into the mix that most potential first home buyers probably earn less then $70,000, and have expenses such as pets, children, sports, a holiday that involves going on a plane (locally or international) and potentially smoking and alcohol… and you can easily burn up that additional $15,000 per year that you would otherwise be saving.
Unfortunately – the baby boomers don’t realise this, and call Gen Y greedy. Yes, we know they made sacrifices with there lives financially, but they DID have it better. The boomers had the opportunity to raise & support a family, purchase a home with a big backyard, and do it all on a single income. Gen Y will not have that opportunity.
Yeh, well I’ve always thought that the Baby Boomers are greedy. They cry foul when a Gen Y buys a $200 ipod, yet they want a Gen Y person to rent their Taxpayer funded investment property for $400 a week.
I wonder if reverse mortgages are the only way out for them?