Saul Eslake is an independent economist, company director and public policy adviser.
We now have almost 60 years of unambiguous and unequivocal evidence that tells us that anything which allows Australians to pay more for housing than they would otherwise –- first-time homeowner subsidies, stamp duty concessions, mortgage deposit guarantee schemes, equity participation schemes, preferential tax treatment for investors real estate, and in fact lower interest rates or reductions in credit standards –- lead primarily to higher house prices rather than higher homeownership rates.
The scheme announced by the government yesterday would, on its face, allow singles to pay up to $250,000 and couples up to $600,000 more for accommodation than they would otherwise (based on the amount maximum that people can withdraw from their super, which then becomes part of their deposit, against which they can then borrow up to four times, assuming a 20% deposit requirement). So it will definitely have the same effect as the schemes I listed above.
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And there is no annual cap on the number of people who can benefit from it – unlike the government’s deposit guarantee schemes or the Labor Party’s “equity sharing” scheme announced during the election campaign. There are also no limits on applicants’ income or the value of property purchased using the program. The only limiting factor is probably: how many aspiring first-time home buyers have that much money in their super?
This program will be warmly welcomed (as I have no doubt it is destined to be) by the approximately 11 million voters who already own at least one residential property, and in particular by the approximately 2 million voters who have two or more properties. It may be welcomed by the much smaller number of potential first-time home buyers who have the capacity to take advantage of it, although you would like to ask how many of them are actually there – and if a young potential buyer has been paid so much that he was able to accumulate so many super, why does he need to tap it to buy a first house?
But it will be met with desperation, I suspect, by the majority of the 100,000 people a year who manage to become first-time buyers – and the probably larger number who would like to but couldn’t become first-time buyers.
And it will be greeted with the same desperation by those like me who have spent years wishing politicians would actually learn something from the evidence of the past six decades.
The policy, of course, also reflects the fact that the Coalition hates superannuation – because it gives unions more power and influence than declining membership would otherwise allow them to have – other than as way to allow older Australians to pay less tax, as evidenced by the other policy announced yesterday regarding the widening of eligibility to transfer proceeds from the sale of homes to the superannuation.
Although the government says its policy won’t ultimately hurt people’s retirement savings because they will have to pay the amount plus the capital gain on the superannuation when they sell the property they bought, it assumes residential real estate prices will rise at a similar or faster rate than a typical super fund.
This has been true for the past 20 to 30 years – but it is precisely for this reason that it may not be true for the next 10, 20 or 30 years. Also, people don’t normally leverage super, whereas they do in residential real estate, so this pattern exposes people to overall higher asset price and interest rate risks than otherwise, while possibly encouraging them to make what could turn out to be a bad “asset allocation” decision.
I want to shout: “This reckless inflation of house prices must stop!” But of course, that won’t be the case.
Disclosure: Contrary to Senator Jane Hume’s claims this morning, Saul Eslake does not own more than one house.