A less than super response to housing

From The New Daily.

Prime Minister Malcolm Turnbull has reportedly intervened to scotch reports the May budget will include a measure to allow first home buyers to access funds from their superannuation.

He may believe that’s the end of the story, but in reality it’s the continuation of a too familiar narrative. This is a government of fragile convictions, bereft of ideas and lacking a cohesive policy framework.

This is not the first time the Turnbull government has floated a ‘big thinking’ idea – such as the short-lived income tax sharing arrangement with the states – only to hastily retreat at the first sign of opposition.

The irony will not be lost on anyone that a government which has boasted that it alone has a plan for Australia is manifestly rudderless on a range of policy fronts. On tax reform, energy, health and education the government has proven more adept at setting expectations than delivering on them.

Treasurer Scott Morrison’s second budget will seek to restore confidence in the government’s agenda, such as it is, but the early signs are less than promising. The flailing Mr Morrison, whose budget will also be aimed at securing his hold on the Treasurer’s job, has set very high expectations in an area he can realistically do very little about: housing affordability.

The grand plan floated for putting housing within the reach of first-time home buyers was a proposal to allow young Australians early access to their superannuation to raise funds for a house deposit. The same proposal that was deemed “thoroughly bad” by Mr Turnbull when it was raised two years ago. The fact that the idea resurfaced raises questions not just about the government’s policy acumen but its political smarts as well.

Under the model that reportedly had the favour of the Treasurer, potential home buyers would be able to put their compulsory superannuation contributions into a special-purpose fund for up to three years.

Despite public support by some members of the government’s restive backbench, including resident thorn-in-the-side Tony Abbott, the proposal has been widely condemned by economists and the superannuation industry. Mr Morrison would have been familiar with criticisms that the early release of super would lead to higher home prices.

And that’s in addition to the criticism that allowing young Australians to access their super early would be to the detriment of providing an adequate retirement income. As it is, with a current superannuation guarantee rate of just 9.5 per cent, retirees will be struggling to fund their retirement.

negative gearing morrisonTreasurer Scott Morrison has come under fire for the plan.

It would have been negligence of the highest order were Mr Morrison to enact bad policy for the sake of being seen to be doing something about housing affordability.

It is one thing for backbenchers to float populist measures in the lead-up to the budget, but Mr Morrison’s conduct on this issue has been reckless. Whether for supporting the flawed proposal or permitting speculation to gain such currency, he stands condemned.

In making housing affordability a cornerstone of his budget, Mr Morrison has again set expectations that the Turnbull government will not be able to meet. While there are assistance measures around the edges that can provide home buyers with some relief, housing affordability is a function of the market. Nationals leader Barnaby Joyce is wrong to assert that there is no housing affordability crisis, but Mr Morrison is no less wrong for pretending that a resolution to housing affordability is in his gift.

As economist Chris Richardson of Deloitte Access Economics told the National Press Club, governments cannot solve housing affordability.

“We now have state and federal politicians talking about housing affordability and their policies, and if we leave families with the impression that governments can solve this, then they’re going to be pretty disappointed,” he said.

“The levers that state and federal governments pull on housing affordability are pretty small levers on a massive thing.”

Mr Morrison would do the nation a favour if he employed similar candour to set the context in which his budget will seek to provide some relief for young home buyers. He would especially do the nation a great service if instead of undermining Australia’s superannuation system he preserved, defended and enhanced its one and only role of providing Australians with a retirement income.

Super for housing a ‘dumb’ policy, says Coalition MP

From The New Daily.

Nationals MP Andrew Broad says capping negative gearing would be a better approach to tackling housing affordability than allowing Australians to dip into their superannuation.

Allowing people to dip into their super would be a “lazy way to address the issue”, the Coalition backbencher told The New Daily.

“Dumb policy is dumb policy, basically,” he said.

“People don’t want us to touch superannuation. I think realistically it has no legs because it would get blocked in the Senate anyway. But more so it has no legs because it is not sound policy.

“[It] won’t work and it has negative consequences on young people’s retirement.”

The Victorian federal MP was backed up by former health minister Sussan Ley, who tweeted that young Australians “need their super for retirement”.

However, plenty of other government MPs, including the Resources Minister Matt Canavan, have urged Treasurer Scott Morrison to embrace the superannuation proposal, which the government’s Expenditure Review Committee is expected to consider this week.

Instead of using super, Mr Broad said he preferred a cap on the number of homes or total dollar figure that can be negatively geared — although he was strongly opposed to Labor’s outright ban on the tax deduction.

“As long as the threshold is fairly high, you could say, once you’ve deducted more than $50,000 from negative gearing, you can’t deduct any more than that,” he said.

“We’ve got to reward people who want to buy one or two investment properties. We don’t need to have a tax regime that allows people to buy 10 or 20 and be in competition with someone who’s trying to purchase their first home and put a roof over their head.”

Meanwhile, other Coalition MPs are publicly lobbying to keep the super proposal alive, with Resources Minister Matt Canavan adding his support on Wednesday.

“This is, I think, a legitimate idea — it’s had support from people like Paul Keating in the past, it’s used in other countries, it’s something we should certainly consider,” he told the ABC.

Liberal backbenchers including John Alexander, Ian Goodenough, Tony Abbott, Tony Pasin and Craig Kelly have stated their support.

Mr Kelly told The New Daily he’d be disappointed if the policy wasn’t in the budget.

“But obviously the budget is not the only time that this change could be made,” he said.

Pointing to Australia’s declining rate of home ownership, he added: “It’s becoming harder and harder for young people to afford to get that deposit.

“I don’t think that is good for the country.”

Assistant Treasurer Michael Sukkar has previously said the super for housing idea could work as part of a broader suite of affordability measures, while Finance Minister Mathias Cormann is on the record as saying it would push up house prices.

Treasurer Scott Morrison is reportedly in favour of allowing Australians to divert their super into a special account, according to the ABC.

If the policy is adopted in the budget, it would still be subject to the whims of the Senate crossbench.

One Nation supports allowing people to access their super, Nick Xenophon and Jacqui Lambie are open to the idea in some form, while the Greens and Senator Derryn Hinch oppose it outright.

The Facts About Using Super For Housing

Given the reported idea of using super to assist home buyers is back, again, data from our core market model offers some important insights into the potential number of households who may benefit. So here is our analysis.

First we look at the average super balances households have by age groups. No surprise, younger households have lower balances because they have not been saving so long, and not benefitted from compounding. In addition, we see that households who “want to buy” a property tend to have a lower value in super than those in the general population.

Next we look at the number of households in each age band, who are “want to buys”, and the number who have a minimum balance of $25k and $50k in super – this is important because most prospective purchasers will need a deposit of at least $50k.

From this we estimate that from the pool of want to buys aged 20-35 of 315,000 about 77,000 would be potentially able to benefit from accessing super for property purchase, or about 24%. So it may make a small dent in the number trying to get into the market, but overall it is a small proportion of the 616,000  “want to buys” we identify across the market.

In addition of course there is the argument that this will simply lift prices in this sector of the market, as a zero sum game, as well as the point that risks in housing are higher (especially at current high prices) and reduced super contributions especially in the early years means compounding is reduced so in later life balances will be lower.


Early super release ‘wrong solution’ for housing

From InvestorDaily.

Giving young Australians early access to their super to finance a house purchase would do nothing to address the underlying problem, says the Committee for Sustainable Retirement Incomes.

Home ownership is a “fundamental determinant of living standards in retirement”, said Committee for Sustainable Retirement Incomes (CSRI) managing director Patricia Pascuzzo, and declining rates of home ownership should be a significant concern for policy makers.

Allowing young Australians access to their super prior to retirement to finance the purchase of a house would go towards fixing this problem, and could potentially improve young people’s engagement with the super system, Ms Pascuzzo said, however the proposal carried “one major flaw”.

“It was the wrong solution for the problem at hand, namely housing affordability. Moreover, in the absence of other measures, it had the potential to exacerbate the problem of housing affordability,” Ms Pascuzzo said.

A number of other solutions, such as the reassessment of tax breaks proposed by Financial System Inquiry head David Murray, would be far better suited to addressing housing affordability issues, Ms Pascuzzo said.

“A number of other policy measures could be actively considered as part of an integrated retirement incomes policy agenda that would also indirectly improve the environment for first home buyers,” she said.

“These include reconsidering the extent of the tax-preferred status of the home and/or including housing in the age pension means test, so long as the exemption limit is set sufficiently high to ensure no pensioner suffers a loss of cash income.”

Access to super is not radical: REIA

From The Real Estate Conversation.

If first-home buyers are allowed to use their superannuation to buy their own home, they are likely to end up with bigger ‘nest eggs’ at retirement than if they rented their whole lives, says Malcolm Gunning, president of the Real Estate Institute of Australia.

He said it is “nonsense” to suggest accessing super to buy a home will erode retirement savings, as both comprise the asset pool at retirement.

Giving young people access to their own money in a superannuation fund to purchase their first home should not be controversial, he said, and is already being used successfully in Canada, New Zealand, and Singapore.

“Accessing Super is not a radical idea,” said Gunning.

Gunning said first-home buyers are often able to save part of the deposit for their first home, but are turning to alternative measures, such as taking out personal loans and using credit cards, to get over the line and cover transaction costs.

“Surveys show that not only are aspiring homebuyers saving for longer but are also using debt to meet their deposit requirement,” he said.

Gunning said the idea of using some superannuation to help fund the deposit on a property purchase was “practical”, and could in fact mean young people have a larger ‘nest egg’ of assets at the time of their retirement.

“Superannuation and home ownership are both components of a retiree’s ‘nest egg’,” he said.

“By buying earlier in life, retirees have every prospect of having a higher equity on retirement and a larger ‘nest egg’ on downsizing.

“It is nonsense to suggest that early access to superannuation for a home deposit would undermine retirement savings,” said Gunning.

“Access to superannuation for the purchase of a first home could help reverse the trend of falling home ownership,” he said, adding that it addresses “the looming social problem of large numbers of long-term renters aged 45 years and over remaining in the rental sector and possibly requiring rental support in later years.”

Gunning said superannuation funds that invested in residential investment property have provided the best returns for their members over the last 20 years. He said individuals should be able to use their super to invest in their own home.

“REIA believes in the benefits of continuing the high ownership level in Australia, particularly as the population ages,” said Gunning.

“The Government should be applauded for considering a holistic approach to housing affordability which includes giving access to superannuation for first homebuyers,” he said.

Homebuyers told to brace for mortgage rate rise shocks

From AAP.

The Reserve Bank of Australia is set to hold its benchmark interest rate steady, but a new survey indicates that consumers should prepare for out-of-cycle rate hikes.

All 14 economists surveyed by AAP expect the RBA to leave the cash rate steady at a record low of 1.5 per cent at its March board meeting tomorrow.

Reserve Bank governor Philip Lowe in February spoke three times about keeping rates on hold to balance the need to boost inflation while maintaining financial stability amid record household debt.

JP Morgan senior economist Sally Auld said the market’s focus following the board meeting will be on the central bank’s comments about December-quarter economic growth of 1.1 per cent, which came in well above the RBA’s implied forecast of 0.8 per cent.

She said the tone of Dr Lowe’s remarks on the economy on Tuesday afternoon probably won’t deviate from the optimistic note struck in February’s interest rates statement.

“Still, we expect some RBA caution that the fourth quarter’s pace of consumption will be sustained, given that the staff assumes that households will be held back by elevated debt levels,” Ms Auld said in a note.

Meanwhile, in a new finder.com.au survey of 38 economists and interest rate experts, 90 per cent of respondents said they expected out-of-cycle rate rises from lenders in the near future.

The website’s insights manager Graham Cooke said first-homebuyers should practice their due diligence.

“With banks likely to lift mortgage rates out of cycle, the onus is on first-homebuyers to factor in potential rate rises to their budgets,” he said in a statement.

“Generally, mortgage holders should account for 2 to 3 per cent on top of their current repayments to avoid rate shock.”

Housing affordability: Experts see stamp duty cuts hiking prices

From The NewDaily.

House prices will increase thanks to a Victorian government decision to scrap stamp duty on some properties, according to experts who warn the move would benefit owners – not first home buyers – if rolled out across the country.

Victorian Premier Daniel Andrews on Sunday announced first home buyers would be exempt from paying stamp duty on properties under $600,000.

Tax discounts will also be rolled out on new and existing homes worth between $600,000 and $750,000 from July 1 under the plan to tackle housing affordability.

It estimated the stamp duty exemptions would benefit 25,000 first home buyers, who would save up to $15,000 – or an average of $8000 – on new purchases.

The move comes as NSW Premier Gladys Berejiklian and the Turnbull government face calls to address skyrocketing house prices in Australia’s south-east.

Prices rose 18.4 per cent in Sydney and 13.1 per cent in Melbourne in the 12 months to February, according to CoreLogic data.

Changes benefit owners

Despite Mr Andrews saying the reforms would place “downward pressure on prices” by creating more housing stock, experts warned buyers should expect to pay more for a home following the changes.

Leading Australian economist Saul Eslake said the only benefit for new buyers was that it “may reshuffle the queue of would-be house buyers”.

“This decision would be welcomed by owners and vendors of existing properties. It will allow those who have properties for sale to sell them at higher prices than they would otherwise get,” he told The New Daily.

“It will do nothing to assist those who want to join them as owners of one property.”

The stamp duty cuts form part of a series of recent housing reforms in Victoria, with the government doubling the first home buyer’s grant in regional areas and making changes to planning laws in Melbourne’s outer suburbs.

Mr Eslake, who advocated replacing stamp duty with a broad-based land tax, warned other states against following Victoria’s lead on stamp duty.

“If it were adopted by other states, the result would be to enrich those who already own properties to the detriment of those who don’t,” he said.

Grattan Institute chief executive John Daley said the Andrews government’s changes may help new buyers in areas where they were competing with investors.

“If you take places where most of the buyers are investors or second home buyers, it will genuinely help first home buyers. It will push up the prices a little but not very much,” he said.

“However, for areas where most of the purchasers are first home buyers, such as the areas on the city fringes, essentially most of the benefit will be passed on to the sellers.

“This will be a huge windfall for the large development companies who do developments on the edge of our cities.”

As the NSW Government mull its own plans to tackle rising house prices, Mr Daley urged the Premier to prioritise changes to planning rules, particularly Sydney’s middle-ring suburbs, to boost housing supply.

“Everyone agrees that’s the right answer, as long as it’s in the suburb next to theirs,” he said.

“Any government that is going to be serious about this, needs to make the public and political case.”

On Sunday, NSW Premier Gladys Berejiklian, who has declared house prices a top priority, said the government was keeping its options open.

“We know in the past governments have had made decisions which unfortunately have had the opposite effect,” she said.

“We don’t want to be in that situation; we want to make sure every decision we take on this important issue has the desired effect.”

Last month, CoreLogic data showed median house prices had reached $970,00 in Sydney and $711,000 in Melbourne.

First Time Buyer Stamp Duty Cut In Victoria As Part Of Housing Strategy

Changes to stamp duty for first time owner occupiers and a vacant property tax have been confirmed by the Victorian Government today.  Separately an equity share scheme was announced to assist first time buyers.

As a package of measures they will certainly impact the market, and whilst the tax breaks and first owner grants may simply lift prices, the tax on vacant properties and equity share strategies could certainly re-balance the market towards owner occupied purchasers. Our research shows there are more than 500,000 households in Victoria are currently struggling to enter the market.

Stamp duty will be abolished for first home buyers for purchases below $600,000, helping thousands of Victorians find their first home, as the Andrews Labor Government tackles housing affordability head on.

Those buying a home valued between $600,000 and $750,000 will also be eligible for a concession, applied on a sliding scale. The exemption and concession will apply to both new and established homes, in a move that is expected to help 25,000 Victorians find their first home.

In a further move to help tilt the scales back towards home owners, the Government will also remove off-the-plan stamp duty concessions on investment properties.

The off-the-plan stamp duty concession will now be available solely for those who intend to live in the property or who are eligible for the first home buyer stamp duty concession.

At the same time, a Vacant Residential Property Tax will address the number of properties being left empty across inner and middle suburbs of Melbourne.

Under the changes, owners who unreasonably leave these properties vacant will instead be encouraged to make them available for either purchase or rent.

The Vacant Residential Property Tax will be levied at 1 per cent, multiplied by the capital improved value of the taxable property. For example, if the property has a capital improved value of $500,000, the amount paid will be $5,000.

There will be a number of exemptions, recognising there are some legitimate reasons for a property being left vacant, including holiday homes, deceased estates and homes owned by Victorians who are temporarily overseas.

Each of these changes are part of the Labor Government’s plan to help more Victorians break into the housing market.

The Equity Share scheme HomesVic was also announced.

Thousands of Victorians, dreaming of buying their first home, will be able to make their dream a reality, thanks to two new changes announced by the Andrews Labor Government.

A new $50 million pilot scheme, HomesVic, will target first home buyers who are able to meet regular mortgage repayments, but because of rising rental costs, haven’t been able to save a big enough deposit.

Under the scheme, to be introduced in January 2018, HomesVic will co-purchase up to 400 homes, taking an equity share of up to 25 per cent in these properties. It will be available for both new and existing homes.

By allowing homebuyers to purchase less than 100 per cent of the property, they will require a smaller deposit and are able to enter the market sooner. In the long term, it will also mean having a smaller loan to service.

Eligible applicants will include couples earning up to $95,000, and singles earning up to $75,000.  Buyers will need to have a 5 per cent deposit. The pilot will be tested across the state, and when the properties are sold, HomesVic will recover its share of the equity.

To further improve buyers’ chances of owning their own home, the Labor Government will also contribute $5 million to a national, community sector, shared equity scheme, Buy Assist.

With similar goals to HomesVic, Buy Assist will help deliver an additional 100 shared equity homes and help low to medium income households get a foothold in the property market.

The Government is also set to give first home buyers priority in government-led urban renewal developments, with at least 10 per cent of all properties allocated to first time buyers.

This approach will be used for the first time at the Arden development.

The plan to develop the 56 hectare site Arden, announced by the Labor Government last year, could be home to around 15,000 people. Under this policy 1,500 of those could be first home buyers.

Finally, in a separate release, the overall portfolio of actions were summarised under “Homes for Victorians”

Every Victorian deserves the safety and security of a home.

But for many, that’s becoming increasingly harder.

A significant number of Victorians, particularly young Victorians, are struggling to break into the housing market.

House prices are rising and upfront costs – a deposit, stamp duty and fees – quickly add up.

It’s getting harder for renters too.

Many struggle to meet high rental prices, or instead choose to live in unsuitable housing. Some don’t have the security they need, or the capacity to personalise their home as they would like.

At the same time, the number of Victorians who need to access public and community housing is growing. Waiting lists are long, and many of our existing homes have fallen into disrepair.

In short, too many Victorians don’t have a real choice about where they live, or the type of home they live in.

And as our population grows, inaction will only make things worse.

Fixing this problem isn’t simple.

It’s why Homes for Victorians provides a co-ordinated approach across government, and across our state. It includes:

  • abolishing stamp duty for first time buyers on homes up to $600,000 and cuts to stamp duty on homes valued up to $750,000
  • doubling the First Home Owner Grant to $20,000 in Regional Victoria to make it easier for people to build and stay in their community
  • creating the opportunity for first home buyers to co-purchase their home with the Victorian Government
  • making long-term leases a reality
  • building and redeveloping more social housing – supporting vulnerable Victorians while creating thousands of extra jobs in the construction industry.

It builds on existing work being done, including the soon to be released Plan Melbourne 2017-2050, reform of the Residential Tenancies Act 1997, the Better Apartment guidelines and the Family Violence Housing Blitz.

It also builds on our efforts to better connect Victorians with services and infrastructure. From schools to health care, roads to public transport, regardless of where they live, every Victorian should have access to the things they need.

It’s a big job, but the aim is simple: to give every Victorian every opportunity to find a home.

VIC FTB To Get Stamp Duty Relief

According to various media reports, the Victorian Government has announced changes to stamp duty attached to buying property today.  Currently, first time buyers in Victoria get a 50 per cent stamp duty discount, but from July, the duty will be removed for first-home buyers in the state where the property costs less than $600,000. In a band between $600,000 and $750,000 there will be stamp duty reductions regardless of whether the property is new or existing. It will assist owner occupied buyers.

Around 25,000 people a year are expected to benefit from the changes with average first-home buyer saving an extra $8,000. Those buying close to the tax limit of $650,000 would be $11,000 better off.

In the financial year 2013-14, the Victorian Government received $3.5 billion in duty, now it stands at $5.7 billion. The changes would cost about $800 million over four years.

Also, a $50 million “HomesVic” program will begin in January 2018 to give about 400 buyers an option to co-purchase a home with the government in an equity share. Buyers will need a 5 per cent deposit to be eligible, and equity up to 25 per cent for each property which the government will recover when the property is sold,  The scheme will target couples earning up to $95,000 and singles earning up to $75,000.

Additional measures include a 1% land tax on vacant property and removal of some investment property stamp duty incentives.

These measures add to the to the land release and country first owner grants already announced. Combined they could make quite a difference to the market.

More First Time Buyers Open An Account At “The Bank of Mum and Dad”

We have updated our analysis of assistance first time buyers are getting from their families in a desperate effort to get into the housing market at a time when the entry barriers in terms of price and affordability are as high as ever they have been. In addition, high loan-to-value loans are less available, so first time buyers need a larger deposit, and first owner grants are harder to access. Savings interest rates are also very low.

We released analysis a few months back, which caused quite a stir as it highlighted the inter-generational  issues in play. We have now updated the quarterly analysis with data to December 2016.

First, more first time buyers are getting help from parents – up to 54% in the past quarter. This help varies from a loan for a deposit, a cash present, help with transaction expenses, or ongoing assistance with mortgage repayments or other household expenses.   Parental guarantees are falling out of favour.

Parents are able to assist, thanks to the wealth effect created by home price appreciation, which is still occurring in the eastern states, though more patchily elsewhere.

Just under half the assistance is going towards first time buyers in NSW (mainly Greater Sydney), where the affordability issues are most difficult, and home prices the highest. But other states are also, to some extent, also in the game.  Ignoring the volume growth, the percentage mix has been relatively stable.

But here is the volume picture, which shows the relative number across states (note the small counts in some states are less statistically robust), but the trends are clear.

Another cut on the data is looking at the type of property being purchased. In 2015, more investment property was is the mix, but now the growth is among owner occupied purchasers.

In terms of the value of the financial contribution, it varies. But for those making a loan or payment direct to assist in a purchase by way of a deposit, the average amount is now north of $85,000.

If parents bring forward payments to assist their offspring, it is worth asking whether this act of kindness may have unintended consequences.

  • First, are parents giving away some of their future financial security?
  • If it is a loan, is the basis of repayment clear, and documented?
  • When a bank assesses a mortgage application do they consider the source of the deposit – receiving a “seagull” lump sum is not the same as demonstrating a history of saving, and the risk profiles down the track are different.

It also raises complex questions around equity between siblings, and a whole raft of questions relating to inter-generational finance.

It is also worth remembering that more first time buyers are going to the investment sector before purchasing their own home for owner occupation, as our first time buyer tracker shows.