Bank backs tax breaks for unhealthy housing market

Ian Rogers Other topics
Broken housing market equals broken labour market. Two banks and Genworth plead for ‘tax deductibility for mortgages’, for members of Health Professionals Bank for starters.
Broken housing market equals broken labour market. Two banks and Genworth plead for ‘tax deductibility for mortgages’, for members of Health Professionals Bank for starters.

Drastic measures are called for by one of Australia’s largest mutual banks, in new research on the deep-rooted barriers to housing affordability, and most of all those workers in this mutual bank’s newest target market.

Taking a fresh approach to the topic, Teachers Mutual Bank commissioned analysis centred on the consequences for “key workers” – those mainly labouring in health and emergency services - given the state of play in a complicated and steadily declining housing market.

Sydney-based TMB is the A$7 billion Sydney-based mutual behind Health Professionals Bank, the newest brand in banking, which began signing up members a month or so ago.

PwC Australia prepared this report for two clients, Teachers Mutual Bank and also Genworth Mortgage Insurance Australia, while PwC and CoreData undertook survey work, mostly among the “key workers” in healthcare and teaching.

The survey found that 79 per cent of these key workers in Sydney and Melbourne “believe that home ownership is not achievable for them [and] as a result, almost one in four are looking to either relocate away from those cities or change careers altogether,” the mutual bank wrote in its overview.

“We are potentially looking at a drain of key workers from Australia’s two largest cities, when demand for their services is growing and at a time when 57 per cent of the general public believe a shortage already exists,” Steve James, CEO of Teachers Mutual Bank, said yesterday.

PwC, TM Bank and Genworth are putting their weight behind “tax deductibility for borrowing expenses”, a tax lurk that for now is the preserve solely of property investors.

This is a topic rarely championed by banks, given the Labor Party’s plans to limit negative gearing to investors funding new housing starts only from the beginning of January 2020 (and with a change of government expected next month).

“The Australian Government could consider extending this tax deduction to key workers in Sydney and Melbourne looking to buy a home, to encourage them to remain in these cities,
where demand for their services is greatest,” PwC argued in the report.

PwC Australia estimated that the Federal Government would forfeit A$63 million in tax revenue if they were to introduce this targeted policy.

The report’s more plausible idea is for an Australian version of “the Key Workers Homebuy Mortgage Program” introduced in Britain 2004, with £690 million in government backing.

The UK Homebuy program, PwC said, “had a material impact on the life and career decisions of a large number of the survey respondents. One third of Homebuy recipients said that without it they would have left the local area; one quarter said they would have left their place of work, while 10 per cent per cent of recipients “claimed they would have stopped being a key worker.”

Saving PwC’s best and most surprising comments on the property market until last:

“Although house prices in Sydney and Melbourne have dropped by 12.3 per cent and 8.7 per cent from their respective 2017 peaks, the barriers to housing affordability for key workers are entrenched, and not significantly alleviated by price depreciation in this range.”

“A 50 per cent to 60 per cent decline in housing prices is needed before key workers can contemplate buying a home within reasonable reach” for this critical, at-call workforce, PwC said.

CoreData conducted its survey work in November 2018 among 1084 respondents, comprised of 506 “key workers” in teaching and health and a further 578 members of the general population, evenly divided between Sydney and Melbourne. PwC conducted detailed, individual interviews with key workers.