AUSTRALIANS can expect to pay even more for housing if the GST is raised, with experts warning of a ‘devastating’ impact on housing affordability.

And would-be homeowners can expect a double whammy if the proposal goes ahead, with mortgages set to become more expensive as the big banks scramble to meet new lending rules.

Urban Development Institute of Australia vice president Michael Corcoran said with housing prices at ‘record levels’ increasing the number of new homes built was essential to solving the affordability crisis.

‘I think everyone including the Reserve Bank agrees that the only long term solution is to increase the supply of new houses and apartments,’ Mr Corcoran said.

‘If the GST increase only applies to new houses and apartments, prices must go up. And that will have a spill-over effect to established housing.’

He said ordinary families’ ability to make their mortgage repayments were hanging by a thread, sustained only by record low interest rates, which would not last.

And developers would be forced to reassess whether new projects were viable, he said, as a fifty per cent tax hike would ‘make significant inroads’ into their profit margins.

‘And this will impact on their ability to raise finance by demonstrating that the project is feasible,’ he said.

Mr Corcoran called for a general land tax to be considered instead of raising the GST.

Housing Industry Association chief economist Harley Dale said if GST applied to new housing hit 15 per cent, the impact on the sector would be profound.

‘It’s a bit of a no-brainer,’ Mr Dale said, predicting a ‘sharp decline’ in construction.

‘There would be a significant reduction of new housing from both an investor and owner-occupier perspective,’ he said.

The HIA is pushing for new properties to be exempt from any increase in the GST and wants alternative tax reform on the table, such as a broadbased land tax that would replace stamp duty.

‘New home building is the only strong component of the Australian economy,’ Mr Dale said, arguing a decline would also hit employment in construction and retail.

‘At the end of the day it’s a roof over someone’s head, it’s shelter. It’s a necessity.’

Meanwhile, the peak body for mortgage brokers predicts the big banks will pass the cost of regulatory changes onto customers, in another blow to home buyers.

The Australian Prudential Regulation Authority has tightened ‘risk weighting’ rules for the Commonwealth Bank, Westpac, National Australia Bank and ANZ and Macquarie.

The rules will require the big banks to raise billions of dollars of extra capital to balance the risk of their home loans, in order to increase the average ‘risk weighting’ for mortgages on their books from 16 per cent to 25 per cent.

Mortgage and Finance Association of Australia chief executive Peter White said he would be surprised if the banks did not pass on the full cost of the changes, which are expected to add an extra 20 basis points to mortgage rates.

‘It’s not going to be monumentally devastating, but it’s not good,’ he said.

Mr White’s advice for those hoping to break into the housing market was to allow plenty of wriggle room in their budgets, warning against loans where people were ‘only barely able to make repayments’.

‘We’ve been saying for a long time that it’s just a matter of time before rates go up,’ Mr White said.

Posted by Dana McCauley – News Limited Network on 21st July, 2015