On the surface it does seem contradictory – especially those comments made by Xenaphon. But many of these guys are self-made individuals and it is possible that small numbers of wealthy individuals could be skewing the overall averages. In either case, I personally would have thought it necessary to attract those types to parliament. As far as I know, most of them have not inherited their wealth like Gina, Murdochs or Packers.
In the Roman senate, there was a long tradition of successful people obligated to do public service – to give to the state so to speak. A similar trend is also starting to occur in China – although those trends could be used/perverted for self-serving interests I guess.
Couple of other question I would ask include: (a) once you strip out certain wealthy individuals – what the house ownership average would be then? (b) Furthermore, are those ownership averages boosted by the number of parliamentarians who actually have flats/units in Canberra that they reside in during parliamentary sittings?
‘An email shown at the commission suggests Mr Loughnane may have been aware of potential arrangements for donations from property developers – which have been banned in NSW since 2009 – to be made to the federal party to subvert the donations ban.
“Brian Loughnane has agreed that for the time being the Fed Sec will operate on the policy … in effect, there is no benefit for a NSW donor to donate via the Fed Sec, unless they are a property developer,” said federal Liberal executive Colin Gracie in a 2010 email to Simon McInnes, the finance director of the NSW Liberal party.
Mr Loughnane’s wife Peta Credlin is Prime Minister Tony Abbott’s chief of staff. He did not respond to requests for comment.
But NSW Liberal Party state director Tony Nutt disputed the context of the email on Wednesday, saying that the comments were made during a discussion about a potential donation by a non-developer to a federal seat, where the ban does not apply.
The inquiry heard separate allegations that members of the Liberal Party subverted the donation laws by diverting money through an alleged Canberra-based front known as the Free Enterprise Foundation, before sending it back to the NSW branch to use in the 2011 State election.’
Nice to know that it isn't just the politicians in on the act
ICAC hears Liberal party boss Brian Loughnane knew developer donations went through federal channels
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Bears should cheer this corruption both hands as it helps developers doing their job, developing supply, against NIMBY and these demand side politicians.
If they make it anything like canada's system, it will effectively tripple the home owner grant, well close enough.
Even if you do make a rule that it has to be paid back in 15 years, people wont care they will buy houses.
I think it could push prices probably faster and further than what happened last time when the FHB grant was available on existing dwellings also. Even if it is restricted to new builds only in the current format, existing dwellings will follow prices just the same.
Its definately not about housing affordability, its about pushing prices, they know this.
Yeah Supers stuff needs careful planning it has the potential to get stuffed up by stupid people.
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$ It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do. Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
Nick Xenophon (along with other groups, such as the REIA), is advocating a policy that will be responsible for making housing affordability worse.
He is using the Canadian "Home Buyer Plan" as an example to promote a similar idea in Australia. That is - allowing first home buyers to raid their superannuation account – sold under the pretext of ‘helping them get onto the property ladder’.
The theory goes that to progress up this mythological ladder, buyers must bet their income and in this case, future savings, on a speculative process that translates into higher house prices, without thought for the next generation of required ‘property ladder’ participants, who will no doubt fall dependant on similar schemes, to keep the tide rising.
The procedure in Canada allows eligible buyers to withdraw up to C$25,000 tax-free from their retirement fund, on the condition that they pay it back over a 15-year period.
If they fail to do this, the amount withdrawn will be taxed as per the income earner's tax bracket. Currently, 35% of Canadians fall into this category however, according to the CRA, roughly one out of two – that is, 47% – contributed less than the required repayment amount over the 2011 tax year.
These means, while the government picks up the added income revenue windfall, buyers, buoyed on by a rent seeking culture that fools the public into believing such policies are designed to be ‘helpful’, overstretch their budget and in weak economic conditions are left to carry the can.
In short - you borrow money from yourself at 0% interest and in doing so; lose 15 years of compounding 'tax free' interest with average returns in the order of 7%.
It’s notable that many low to middle-income individuals have inadequate funds to draw upon, therefore even assuming the scheme were to be effective, it’s limited in the difference it can make.
But the real ‘nub’ of the issue, which Nick Xenophon has failed to acknowledge, is that the Canadian Home Buyer Plan was never intended to aid affordability.
It was promoted by the real estate industry as a temporary measure, following the recession in the late 1980s, to stimulate land values and benefit the FIRE sector, along with it's economic offshoots - renovations, furniture, appliances, moving costs, tax revenue to government and so forth.
The FIRE sector has lobbied to keep in place ever since and also pushed for the threshold to be raised.
This is because most Western economies have constructed their tax and supply policies to reward real estate speculation over and above productive enterprise.
The process is assisted and abetted by a banking industry that seeks to lend against land as collateral, favouring the extraction of economic rent, over and above extending loans for the purpose of productive enterprise
Canadian residential real estate tripled from an estimated C$1.3 Trillion in 2000, to C$3.8 trillion in 2014, however, only C$550 billion of this was for renovation projects or new home building - the rest was pure inflation.
By the end of 2011, the Home Buyer plan had been used 2.6 million times, with total withdrawals adding up to around $27.9-billion – that’s $27.9 billion of additional credit, feeding into existing house prices.
Between 2005 and 2011, Canadian house prices rose 58%, while average income for 25-34 year olds, increased by just 6%.
The Royal Bank of Canada reports that detached housing now requires more than 80% of the median household income for mortgage payments in some of the country’s major cities.
Household debt to disposable income in Canada is currently 163.2%, up from 129% at the peak of the boom in 2006 and sitting only a few degrees lower than the recorded level in Australia.
Mainstream economists like to focus on government debt as a barometer of the heath of the economy. However, high and rising levels of private debt, as a consequence of such policies, constrain demand and eventually exceed the income and economic activity they helped create.
Nick Xenophon cites the Demographica Housing Affordability Report in his press release, however it’s clear he has not read it.
If he had, he would know that like Australia, Canada's largest major markets are also rated as “severely unaffordable” – and by studying the ‘affordable markets’ such as Texas, or areas of Pittsburgh for example, Mr Xenophon would have a better understanding why these states avoided the harsh consequence of the GFC, and continue to generate healthy levels of economic growth.
Significantly, both cities have land tax and liberal supply policies that deter speculation – helping to keep real estate affordable, while investment is channelled into other areas of the local economy.
While, Australia rewards speculation, allowing the geo-rent (the unearned gains) from rising land values to capitalise into the land price, year upon year, taxing income earners, instead of resource rents, which by design, distorts economic activity, housing supply policy, and subverts social justice.
(90% of taxation revenue has distortionary effects, pushing up prices 23% higher than need be, while economic rents from land and natural resources have no such deadweight loss.)
Never, throughout the course of history, has such a policy been sustainable.
At some point the productive capacity of the economy can no longer support the boom and the consequences, particularly for first home buyers, can be particularly severe, as Australia’s history of land induced financial crises reveal.
However, when you appreciate how lucrative and wide spread this activity can be, it is very easy to see how policy fails us, and it’s additionally easy to see why a country with a plentiful supply of land like Australia, submits its younger generation to a life time worth of debt slavery, just to get onto the ‘property ladder’.
An open letter to Nick Xenophon Independent Senator for South Australia.
Yo, Nick.
Garth here. We share a few things, so I hope you don’t mind the input. You were a small business guy (albeit a lawyer) who got into politics for specific reasons. Me, too. You’re now concerned the people you represent can’t afford houses any more. Ditto. You think the middle class is reasonably screwed. I’m with you there. We tweet. We blog. And, of course, we both fondle goats.
However, Nick, I’m not loving your most recent crusade. In fact, I think you need a better research assistant because you’ve just messed up as far as Canada is concerned. The last thing you Aussies should want to do is slide down the slippery path of encouraging more moist virgins to jump headlong into inflated houses and bloated debt.
I just read this about you, dude:
Independent Senator for South Australia, Nick Xenophon, will introduce legislative changes in the Spring session of parliament to allow first home buyers to access their superannuation savings to pay a house deposit. Such a scheme successfully operates in Canada, called Home Buyers’ Plan, leading to improved housing affordability.
At a Senate Economics References Committee hearing in Adelaide today, the Inquiry heard from HomeStart Finance (an arm of the South Australian Government) outlining the Canadian scheme. In Canada up to $25,000 can be accessed for a first home, and it’s made a dramatic difference for housing affordability there.
However, Senator Xenophon will be moving for changes to Superannuation Act 1976 to allow the release to superannuation funds for a first home, with similar safeguards to the Canadian scheme. In Canada the amount has to be paid back into the super fund within 15 years.
“With more and more Australians finding it difficult to break into home ownership, adopting the Canadian scheme would make a difference to many thousands of Australians each year,” Nick said. Housing affordability in Australia has fallen for the past three decades, as house prices outstrip income growth.
An annual affordability survey by Demographia this year found Australia had the second-worst housing affordability in the world, behind Hong Kong. All 39 Australian housing markets surveyed were “seriously” or “severely” unaffordable, defined as having average house prices more than four times average income.
I confess. Once I thought like you. I even supported realtors years ago when they cooked up this scheme to allow kids to dip into their retirement funds to buy a first home. At the time we were in a steep recession with real estate plunging and the economy in a funk. So, I voted in our Parliament for a temporary program to create the Home Buyer’s Plan in order to stabilize the market and try to revitalize the home-building business. It worked, kinda. Then subsequent governments (a) made the plan permanent and (b) doubled the amount people can suck out of their registered savings.
Now, Nick, we’re reaping the bitter harvest sown when that dumbass legislation passed. Allowing first-time buyers to remove tax-free money to buy a modest home they could not otherwise afford, then restore it to their long-term retirement savings makes perfect sense in theory. In practice and experience, just the opposite.
To date the HBP has been used about 2.5 million times, with roughly $30 billion removed from savings and investments and plowed into real estate. When combined with dirt-cheap mortgage rates (I notice Aussie banks just slashed five-year rates to an all-time low) and voracious, carnivorous bankers, it’s helped push home prices into the clouds. The cost of an average detached house in two of our major cities now exceeds $1 million. (I see median home prices in Sydney rocketed 17% in the past year, to $812,000. So you know what I mean.)
In other words, if you think letting people steal money from their financial futures in order to buy houses today which they really can’t afford is going to make real estate more affordable, you’ve been spending too many evenings with the goat. The opposite is probable. In Canada, it’s fact.
But it gets worse. The evidence also shows when you allow this kind of distorting financial activity to take place, people respond badly. They borrow their brains out, Nicky. Total horniness. As I wrote on this pathetic but repentant blog recently, the kids aren’t even paying this money back – which means we’ve not only goosed houses, increased the risk of a serious correction and skewed the condo economy further – but there are billions less being saved and invested for our pensionless future.
Nick, you need to know this: the latest Canada Revenue Agency stats found almost half (47%) of the borrowers who raided their RRSPs haven’t paid anything back. So the missed payments are added to their incomes and taxed. And why would the virgins be so dumb?
Simple. They don’t have the cash. They borrowed to the max, took advantage of cheap rates and willing bankers, sucked off the tax-free money guys like you (and me) provided, and likely bought their home in a bidding war, forcing prices higher. Bad outcome. Now more Canadians have financing worth over 80% of their home values than Americans had before the big crash.
So, buddy, back off. The goal of a caring politician isn’t to shoehorn more people into debt and bad decisions, just because they want it. Instead, your role is to lead, to stand up for common sense, and battle the forces of cheap expediency and sleazy solutions.
First home buyers are fighting with a 100 pound gorilla with one arm tied behind their backs as they compete with investors who have the luxury of negative gearing and superannuation funds.
I believe the answer to improving affordability lies in rethinking superannuation laws and first home buyer grants.
Historically the family home has been the corner stone of ones wealth but this is in danger of being lost. Superannuation was implemented to help people self fund their own retirement and compliment the wealth in their family homes. I believe that allowing first home buyers to access their super and assist them in laying that foundation keeps within the spirit of superannuation.
A worker who earns the average Australian income of $50,000 a year will have around $36,000 in super by the time they are 30 not including any return on their investments. As a couple that is $72,000! They also have the benefit of diverting more of their income into a tax-sheltered environment. It would not be unreasonable for a first home buying couple to have in excess of $100,000 in super by the time they want to purchase their first home.
A large deposit like this would mean first home buyers have more equity in their home and as a result in a more stable financial position. It would also save a significant amount in interest. For example if a first home buyer had a $100,000 deposit they would only need to borrow around 80% of the property value rather than 90% or more. On a $500,000 home that would save them $2,500 to $3,000 per annum in interest.
They would also avoid paying a hefty mortgage insurance bill of around $5,000 to $10,000 in most cases.
Buying a property is only the first step to home ownership. Keeping up with the mortgage payments is where the real pain starts to bite. If governments really want to help with home ownership they should look at providing ongoing assistance and review first home buyer grants.
First home buyer grants have evolved over the years but on average they provide first home buyers with around $10,000 cash or stamp duty saving benefits. Rather than paying first home buyers a lump sum payment that is usually paid to the banks for mortgage insurance, I believe annual payments will be more effective and a better use of taxpayer money. An annual payment of $2,000 a year for the first five years would help first home buyers establish themselves in the market.
While the devil is in the detail the points outlined above provide a win-win outcome. The government wins as it helps solve first home buyer affordability at no extra cost. The economy wins, as more money will flow into the important building industry. First home buyers win as they will enter the market without paying mortgage insurance and save around $5,000 per annum in holding costs for the first five years.
There is a potential downside in that it would place further pressure on property prices. However this is already happening even without first home buyers and these ideas will go a long way to levelling the playing field between first home buyers and investors.
They would help young Australians into the market and start the process of building wealth in one of our most powerful tax-free investments – our home.
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