NO.051

RELEASE OF THE PRODUCTIVITY COMMISSION REPORT ON FIRST HOME OWNERSHIP

The Prime Minister and Treasurer today announced the release of the Productivity

Commission’s final report from its Inquiry into First Home Ownership and

the Government’s response to the report.

The Productivity Commission report finds that fluctuations in prices and affordability

are inherent features of housing markets and that there is limited scope for

governments to improve affordability for first (and other) home buyers in the

short term. The Commission observes that increased house prices have significantly

reduced housing affordability for first home buyers, however the Commission’s

assessment is that affordability will improve over time, with evidence of a

market cooling already beginning to emerge.

Demand for housing rose strongly through the 1990s, underpinned by low interest

rates, strong employment growth and financial liberalisation. The Commission

recognises that demand drivers have been overwhelmingly beneficial to the Australian

community and by themselves should not be the targets for ‘remedial’

policy intervention. Instead, the Commission concludes that government policy

should be directed towards addressing structural factors that impede the efficient

operation of the housing market.

The majority of the Commission’s recommendations relate to the supply

side of the housing market and are therefore directed at State and local governments.

In particular, the report finds that improving land release and planning approval

processes, and ensuring developer charges for infrastructure relate appropriately

to the benefits provided to home buyers in new housing developments, will assist

with moderating price and affordability pressures over time. The Government

encourages the States and Territories to look closely at this report and its

recommendations.

The Commission also finds that reducing stamp duties would help first home

buyers and improve the efficiency of the housing market over time. The Government

welcomes recent initiatives by State and Territory governments to provide stamp

duty relief for first home buyers and urges continued reform of stamp

duty across all States and Territories.

The Australian Government provides significant resources to address the housing

needs of low income households and does not support a national public inquiry

into this matter. Work is already being undertaken under the auspices of the

Housing Ministers’ Conference, looking at ways to enhance the affordability

of housing for low income households. In addition, the Australian Government

provides targeted assistance to low income households through the $4.75 billion

Commonwealth State Housing Agreement (CSHA) and $1.9 billion annually

for Rent Assistance to help nearly one million private renters.

The Government understands the importance of providing Australians with continued

surety for their investment decisions. As previously announced, the Government

considers that it would be inappropriate to change existing arrangements relating

to capital gains or negative gearing. The Government has improved incentives

to save and invest by introducing an internationally competitive capital gains

tax regime. The Government will therefore not be conducting a review of the

tax system with respect to housing or changing the capital gains tax provisions.

The Government remains committed to the First Home Owners Scheme in its current

form. The First Home Owners Scheme was introduced to offset the impact of the

GST and tax reform on housing. The Government will continue to support the First

Home Owners Scheme and will not restrict or means test the current $7000 grant,

thereby continuing access to all first home buyers.

A full copy of the final report is available on the Productivity Commission’s

website at

http://www.pc.gov.au,

while the Government’s response to the report is also available at

http://www.treasurer.gov.au.

The Government thanks the Productivity Commission and all those who provided

submissions and assistance to the Inquiry.

CANBERRA

23 June 2004

Contact: David Alexander

02 6277 7340