Housing: Libs Fail Millennials, Again
Article By Van Badham, Freelance Journalist
26th May 2017
It's been said, and repeatedly, that should an Australian government wish to ease access to affordable housing, it would behoove them to curtail the tax benefits provided to multiple-property-owners through negative gearing and capital gains tax schemes. If properties that currently have tax advantages become tax liabilities, incentives to release your properties to the market are strong.
As revealed in the May 2017 federal budget, however, the Turnbull government will not be taking this action.
The government's alternative budget remedies for housing affordability include increasing supply through the release of crown land for development. But housing demand is concentrated in the inner-city areas where people actually work, not where such land is available. Given the paucity of public infrastructure like transport in outlying suburbs already, short of digging up Sydney's Botanical Gardens or zoning the State Library of Victoria as residential, the government's plan merely acknowledges a problem in lieu of solving it - although it occurs to me, I shouldn't write that down about the Gardens; I don't want to give Scott Morrison ideas.
The second key government proposal is to allow first-home buyers to redirect $30,000 of their accrued superannuation contributions towards the deposit required to obtain a home loan. While this is couched in financey-speak to sound thought out and clever, as a practical solution to housing affordability it remains on the level of taking a shovel to Mrs Macquarie's Chair.
The challenge for the lay-person evaluating the scheme begins with the word "superannuation", the system by which Australian workers are obliged through pay deductions and matched contributions from their employers to save for retirement. For young Australians preoccupied with home ownership, investment planning for comfortable old age may seem a distant concern - an assumption the government made when they first floated this policy idea way back when Joe Hockey was Treasurer.
Tangible numbers, however, remain more difficult to remove than old Treasurers; the idea was shelved because - as folks like Industry Super chief economist Stephen Anthony explained - directing even only three to five years of your super at the beginning of your career equates to losing seven to twelve years of superannuation income when you retire.
Never ones to abandon an idea just because it was a bad one, the government's new plan is to allow prospective homeowners to take advantage of the superannuation's low-tax and relatively stable rates of interest to plop "voluntary contributions" into their funds above the 9.5% of their pay currently obliged by law. If you can find up $30,000 a year to add to your fund, you can withdraw it when you're ready to buy a house.
Which is great if in pre-tax dollars you're collecting $90,000 because it's only a third of your salary but less than half the population do earn that much. For the bottom 40% of Australian wage-earners, spending 30% of your income on housing - in total - officially puts you in housing stress, let alone if you're trying to scrape together more contributions for the pot.
Surprise! The initiative rewards those who already have the means of buying into the housing market.
It's not a program for those who actually need help. Nor is it a programme in the interest of anyone else with a superannuation account; by obliging the super-funds to guarantee the rate of return on these short-term housing deposit investments, if the super-funds are weathering downward fluctuations, they'll have to raid the long-term investments of other fund members to pay out the guarantee to the home-depositeers. As per the government's plan, the funds themselves won't be told what the added money is for, they just have to be ready to pay it out. Yep, your retirement savings may be funding the property investments of the richest half of the population.
And that's if the scheme even works.
The earlier iterations of the plan were described as a "Ponzi scheme" - because rather than truly increasing housing supply where it's needed, it merely directs more money into a pyramid where those who already own property can "jump off with a profit" at any time, but those buying in will only be able to cover their debts if subsequent generations can find even more money.
The Financial Review says that in inner city areas, where housing supply is not expanding, "the measure is likely to lead to price increases if it is embraced by younger savers". And property researchers from CoreLogic ran some numbers on what a 20% deposit boosted by three years in this scheme could buy the "average saver". The answer was: nowhere in Sydney, nowhere in Melbourne, nowhere in Darwin and only one suburb in Canberra. In Brisbane and Perth, purchases were limited to flats. There were 9 suburbs left in Adelaide where you could afford a house, and 18 in Hobart. So if you can find a $90k+ job in those cities, and don't mind spending the last 12 years of your life in poverty, it's a workable scheme.
Tunnelling under the Sydney Botanic Gardens may be a ridiculous suggestion, but given the government's current housing policy settings, one can see how it might be thought viable, after all.
For more information, please look at these websites:
Housing stress: Understanding the 30:40 indicator of housing affordability stress
https://www.ahuri.edu.au/policy/ahuri-briefs/2016/3040-indicator
ABC: Using super to buy real estate might not buy you much more: Core Logic property affordability:
ABC “Superannuation for housing deposits would facilitate intergenerational theft”
https://mobile.abc.net.au/news/2017-03-16/super-for-housing-deposits-intergenerational-theft/8360890
Household wealth:
https://mccrindle.com.au/the-mccrindle-blog/australias-household-income-and-wealth-distribution
AFR article by Sally Patten:
The Housing Affordability Summit 2017 is produced by Glen Frost, Frocomm Australia P/L; Frocomm Australia commissioned Van Badham to write this article, and gave Badham complete control over the content of the article; we will offer more articles by Van Badham, and others, in the future on the topic of housing affordability.
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7 年Interesting piece Glen-- with Millennials now making up the largest population segment of many countries and entering their peak earning years, real innovation is required in this space, as we have seen in other countries like the UK, New Zealand and to a lesser degree Canada. While the solutions, as some argue, are not necessarily perfect, they have helped ten of thousands of first time buyers take the first step into home ownership and start to build wealth independently outside of superannuation.
Lilypad Network Chief Innovation Officer
7 年Are these the same Millennials that got a taste for tokenised payments in the sharing economy and p2p, not sure they are what the housing market is looking for.
Entrepreneur, start up investor and founder of Castle Digital
7 年Great article. This is just the First Home Buyers Program rehashed as the article points out. The main reason that went down like a lead balloon with Millennials is that if your circumstances change and you don't buy a home your savings are stuck in super until, 2056, 3067???