Should the federal government allow first-home buyers to access their superannuation to pay for a housing deposit? Only if they want to enrich themselves and see housing affordability deteriorate even further.
Australia’s approach to housing is full of misguided policies and dumb ideas. Genuine attempts to improve affordability, increase fairness or boost home ownership rarely win out over quick fixes that inevitably benefit home owners and investors at the expense of the renting class.
Australian housing policy can best be viewed as a remarkably successful anti-Robin Hood scheme. We take from the poor (usually those under 40) and give it to the wealthy (often but not always ‘baby boomers’).
Over the years we have introduced all sorts of dodgy schemes to continue this rort -- the two most famous being the First Home Owner Grant and the capital tax discount. Now Treasurer Joe Hockey wants to add fuel to an already raging fire.
“I get a lot of people approaching me saying that young people should be able to use their superannuation to fund a deposit on a home, on their first home,” Hockey said in recent days.
I’ll hazard a guess that few of them were economists or individuals able to offer much insight into the demand and supply characteristics of the property market. But let’s be clear: housing affordability cannot be achieved by increasing the demand for housing.
“I am concerned about rising house prices and the accessibility to homes and homeownership for younger Australians,” Hockey said.
It’s good to see some concern about housing affordability from Hockey -- housing affordability should be a key policy area for this government and the type of issue that defines and determines elections. Unfortunately it has largely been ignored and on the few occasions that it takes centre stage it is usually to recommend another dodgy scheme.
Allowing younger Australians to use their superannuation for a housing deposit would have a similar effect to the FHOG. Although quite popular, that scheme has been an unmitigated disaster with regards to housing affordability.
It certainly did nothing to boost home ownership. According to the Grattan Institute, home ownership among 25- to 34-year-olds has fallen from over 60 per cent in 1981 to around 48 per cent in 2011; for those between 35 and 44 years old, ownership rates have dropped around 10 percentage points over the same period. With investor activity accounting for a record share of new home loans, those rates have surely fallen since then.
According to the Council of Australian Governments, the FHOG has encouraged first home buyers into the market but that doesn’t necessarily imply higher home ownership. Instead it simply brings forward those purchases, leaving ownership rates -- at best -- largely unchanged.
Of more immediate concern for housing affordability is the fact that the FHOG -- or in this case superannuation deposit -- becomes quickly incorporated into price expectations for existing property. Rising demand -- and more money -- runs head first into a fixed housing supply and the only result is rising prices.
These policies also encourage first home buyers to take on more debt than they otherwise would. For example, let’s consider a couple who remove $25,000 from their superannuation to put towards a deposit.
At an 80 per cent loan-to-valuation ratio, that couple could borrow an additional $100,000 towards buying a home. At a 90 per cent LVR, the same couple could borrow an additional $225,000.
That is fantastic if you’re an existing home owner or investor -- such as Hockey and a vast majority of his Parliamentary colleagues -- but is it really that desirable to drop a mountain of debt on Australia’s younger generations?
Unfortunately these policies fail to help home buyers service their debt. Consequently, these policies merely create the illusion of greater affordability and fool younger Australians into taking on an even greater debt burden.
This plan has already been tried in Canada and did nothing to help housing affordability there. In fact, according to the International Monetary Fund, Canada is one of just two OECD countries with a more overvalued housing market than Australia.
It is also undesirable for younger Australians to risk their retirement savings on a single asset. Our superannuation system plays an important role in our retirement plans and shouldn’t be comprised to boost property prices.
The system exists to ease the pressure on our pension system; why would any politician, in their right mind, want to compromise that?
If Hockey is serious about addressing housing affordability then there is a range of policies that he could pursue. If he wants to boost home ownership then he might look at addressing our overly generous negative gearing and capital tax discount schemes (Why negative gearing is Australia’s biggest policy failure, July 9).
If he wants to reduce prices and demand he could implement greater capital requirements on Australian banks, as recommended by the Murray inquiry (Murray’s glaring omission, December 8).
If he wants to boost supply -- which would likely have the biggest effect on prices and ownership -- then he could lobby each state government to ease supply-side restrictions that artificially reduce land supply and property construction, while also boosting prices.
There are so many good ideas for addressing housing affordability that is a shame that we dwell on the dumb ones. It is time that our politicians -- at both the state and federal level -- begin to take housing affordability seriously. It is time that they looked beyond their own property portfolio and put the interests of their electorate first (The conflict of interest killing housing reform, August 6).