Well personally I feel that I should be allowed to invest my super fund in cars, jetskis, hookers, and beer. I promise my fund I'll pay it all back some day.
Speaking of which, what happens if the intrepid FHB runs into trouble and is unable to repay the early withdrawal from super? Presumably the ATO is going to want its foregone tax revenue back, with interest and penalties, which will only compound the FHB's misfortune.
We know that first time buyers are sitting on the sidelines, as shown in our recent surveys. The biggest barrier is price. Many are desperate to enter the market and would jump an any additional incentive.
No surprise then to see proposals popping up from time to time to try and assist first time buyers. Often they are tactical and shorted sighted. The latest is from Nick Xenaphon, the Independent Senator for South Australia “Home affordability: a Super idea“.
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. “As HomeStart Finance said today, there’s something strange about being able to access your super fund if you are about to default on your housing loan, but you can’t access it to put a deposit on a home in the first place.” 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. Senator Xenophon gave credit to his state colleague, John Darley MLC, who has been a long-time advocate for releasing super funds for home buyers.
At least he recognises we have a serious problem in the housing sector. Here is the recent data on the percentage of first time buyers transacting, its pretty much as low as its ever been.
However, we do not think his suggestion has merit. In fact it would be a disaster. His proposal would be, in effect an additional first time over grant, by another name, and we have already shown the first time buyer incentives merely lift prices in the short term, and do nothing to assist long term. You can read our earlier analysis “First Time Buyer Incentives are Bad News” here.
Two additional points, Canada’s housing market is overheating, as shown in our recent comparisons, based on the recent data from the IMF, which we reported here. So their policy settings are not correct.
In addition, there is additional risk, especially when prices are higher than they should be, that households will be exposed when rates rise. First time buyers are already highly exposed. It they also have their hard earned super locked into housing, this is an additional and concerning exposure. The interim FSI report highlighted concerns about super flowing into property. It is a risk too far.
If the politicians want to address the housing issue (and that means recognising there is a problem, which needs attention – RBA please note), then there are alternatives they should consider. Tackle negative gearing, work with the states on land supply, and bring in macroprudential controls on lending. Read my suggestions in detail in the submission I made to the Senate Inquiry into Affordable Housing. My policy suggestions were:
Australia should develop a strategic housing plan which guides ongoing development, be it in current centres, or expansion into new towns. Current tactical plans are not sufficient. The plan should specifically address the supply of affordable housing.
Strategies should be devised to increase land supply. State governments should reduce the current high levels of access fees for new development and revise planning criteria and processes. This has the potential to create considerable economic growth.
Overseas investors should not be able to access first-time buyer incentive schemes, and the Foreign Investment Review board rules should be strengthened to reduce the impact of foreign investors on the local market.
The RBA should have a direct multi-segmented housing affordability metric within its measurement framework. Affordability should be targeted at trend average, not rates experienced since the debt explosion of the 2000 onwards.
Macro-prudential policies should be employment to control the growth in lending. In line with the recommendations from the Bank of International Settlement debt to income servicing ratios should be employed as the policy tool of choice.
Negative gearing should be tapered away and removed for new transactions.
Joint equity schemes like the UK’s Help to Buy Scheme should be considered as a tactical step to assist some of the “Want-to-Buys.”
Speaking of which, what happens if the intrepid FHB runs into trouble and is unable to repay the early withdrawal from super? Presumably the ATO is going to want its foregone tax revenue back, with interest and penalties, which will only compound the FHB's misfortune.
That's why it should be an equity arrangement, no repayments required.
Fund owns a percentage of the property, on sale that percentage is paid back into fund. Fund has 1st priority in creditor list..
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
Correct me if I'm wrong, but technically the option is 'sort of' available anyway - Though you'd need to leverage up on your super in a SMSF to buy an IP (rather than to buy your home.) Though it could become your home when you eventually get to cash out your super - If cash outs are still allowed.
Though there's all sorts of shite to consider I guess - Neg gearing/CGT/tax rate implications of buying property for different purposes using different types of entities being a few that immediately come to my mind.
I find it all a bit overwhelming actually. Why, why, why do we have to have all these numpties continually dreaming up new ways to change things? And after they've realised they've screwed things up, dreaming up new ways to make it 'all better'. Which they don't seem to? (Plus all the numpties to provide 'advice' on the ever increasing complexity and never ending changes.)
Is it as simple as "Churn, churn, churn"? - All changes are good changes if they result in more complexity requiring more 'experts' with gov getting to charge GST on the loot the mug punters get to pay to those experts; Plus the tax the experts pay on their income as well of course.
And in the case of super, because gov reckons we are just basically too thick and short sighted to be bothered attempting to provide for our own retirements?
Correct me if I'm wrong, but technically the option is 'sort of' available anyway - Though you'd need to leverage up on your super in a SMSF to buy an IP (rather than to buy your home.) Though it could become your home when you eventually get to cash out your super - If cash outs are still allowed.
Though there's all sorts of shite to consider I guess - Neg gearing/CGT/tax rate implications of buying property for different purposes using different types of entities being a few that immediately come to my mind.
I find it all a bit overwhelming actually. Why, why, why do we have to have all these numpties continually dreaming up new ways to change things? And after they've realised they've screwed things up, dreaming up new ways to make it 'all better'. Which they don't seem to? (Plus all the numpties to provide 'advice' on the ever increasing complexity and never ending changes.)
Is it as simple as "Churn, churn, churn"? - All changes are good changes if they result in more complexity requiring more 'experts' with gov getting to charge GST on the loot the mug punters get to pay to those experts; Plus the tax the experts pay on their income as well of course.
And in the case of super, because gov reckons we are just basically too thick and short sighted to be bothered attempting to provide for our own retirements?
If your talking about a first time buyer, they most likely wont be looking at some sort of SMSF setup with an IP. Its hard enough for most of these people to choose a property to buy and get their head around, than have them go down this path.
SMSF property investing is really for people well and truly on the property ladder i think, i mean anybody can do it but they arent at that stage yet.
If that's the case, then the bank (mortgage provider) will want their pound of flesh (i.e. a considerably higher interest rate) for being 2nd mortgagee on the property. And in turn, the LMI provider will want a higher premium to guarantee against mortgagor default, given that the FHB will not necessarily have shown a sustained pattern of savings.
Really, the whole thing doesn't work unless the superfund contribution sits no higher in the food chain than a 2nd mortagee.
I do think any one needs to contemplate carefully in how Super is going to affect their financial status.
It can be a terrible trap for inexperienced like the FHBs.
When one considers the FHOG, the free govt $ did give some FHB more $ to leverage with the Banks, which did help push up the property prices. I do believe that the FHB got a dud deal in that the real winners were those trading up & yeah the developers.
So, in inexperienced hands it just may do more damage than good.
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.
I do think any one needs to contemplate carefully in how Super is going to affect their financial status.
It can be a terrible trap for inexperienced like the FHBs.
When one considers the FHOG, the free govt $ did give some FHB more $ to leverage with the Banks, which did help push up the property prices. I do believe that the FHB got a dud deal in that the real winners were those trading up & yeah the developers.
So, in inexperienced hands it just may do more damage than good.
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.
I think it a near-certainty that super funds - or pretty much any other source of funds for that matter - that are aimed at "increasing affordability" will simply be capitalised into higher house prices, reducing affodability rather than increasing it.
Any kind of grant or subsidy whatsoever simply allows vendors to increase asking prices, nullifying any affordability gains except for those who get in early.
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