Joe Hockey raises prospect of first home buyers using super to enter property market; Joe Hockey's plan for early access to super appeals to the young and the Greens
Tweet Topic Started: 6 Mar 2015, 06:31 PM (10,961 Views)
The reality is the government is going to do fuck all for housing affordability because it means falling house prices which is politically unpopular.
Got it in one.
I would add that rising prices are also good for government on two fronts. One is increased state government revenue. The other is increasing personal revenue, since almost all of them are vested interests themselves.
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People will still accrue super after drawing it down to preservation age.
How much though? The first effect of being allowed to use the first decade or so of their super will be rapidly rising prices that will consume and nullify the affordability gains made by being able to use their super. Whichever way you look at it, it means a lot of people will be retiring with rather less of the savings that were mandated for that very purpose. That will be a significant long-term impact on your typical wage earner for no affordability gain. Necessity may be the mother of invention (depending on what it is you deem necessary) but sooner or later we are going to run out of ways to allow people to pay every larger sums for housing.
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People will still accrue super after drawing it down to preservation age.
How much though? The first effect of being allowed to use the first decade or so of their super will be rapidly rising prices that will consume and nullify the affordability gains made by being able to use their super. Whichever way you look at it, it means a lot of people will be retiring with rather less of the savings that were mandated for that very purpose. That will be a significant long-term impact on your typical wage earner for no affordability gain. Necessity may be the mother of invention (depending on what it is you deem necessary) but sooner or later we are going to run out of ways to allow people to pay every larger sums for housing.
A bloke at one of my clients was talking about this the other day, and his suggestion was that we allow people to borrow from their super funds, subject to rules, to enable them to buy a house. For example, they would borrow $50k from their super fund and perhaps $450k from a bank. They would make regular payments back to super, with interest. That would then give people the flexibility to pay down the bank more quickly, and pay only the minimum to super, which would allow them to pay more later, thus increasing their super balance beyond the standard contributions.
Personally I'm not a fan of using super for anything other than a pension in retirement. But who knows, maybe an idea will come along that changes the way we look at this massive, and steadily growing, resource.
A bloke at one of my clients was talking about this the other day, and his suggestion was that we allow people to borrow from their super funds, subject to rules, to enable them to buy a house. For example, they would borrow $50k from their super fund and perhaps $450k from a bank. They would make regular payments back to super, with interest. That would then give people the flexibility to pay down the bank more quickly, and pay only the minimum to super, which would allow them to pay more later, thus increasing their super balance beyond the standard contributions.
Personally I'm not a fan of using super for anything other than a pension in retirement. But who knows, maybe an idea will come along that changes the way we look at this massive, and steadily growing, resource.
Interesting idea.What happens though when the price inevitably explodes in response?
What happens though when the price inevitably explodes in response?
Would it though? There'd have to be basically the same due diligence by the super fund that there would by the bank, and overall serviceability would still be taken into account. People wouldn't get more money to spend, they'd just get it from different sources.
The banks would lap it up by selling super + loan packages with discounts to bring people in.
I'm not suggesting we should necessarily do this, but it certainly gives rise to some interesting ideas. I wonder how a SMSF would go if required to foreclose a property occupied by a trustee of the fund??
Would it though? There'd have to be basically the same due diligence by the super fund that there would by the bank, and overall serviceability would still be taken into account. People wouldn't get more money to spend, they'd just get it from different sources.
The banks would lap it up by selling super + loan packages with discounts to bring people in.
I'm not suggesting we should necessarily do this, but it certainly gives rise to some interesting ideas. I wonder how a SMSF would go if required to foreclose a property occupied by a trustee of the fund??
I would have thought it a given.
Suddenly, a wave of money that has not previously been available until the end of the working life would now be available relatively early in the working life and would be designed to flow directly at housing. I can't imagine how it would not end up capitalized into higher prices. I can't see how it's effect would be fundamentally different to a FHOG. It would just be bigger.
I'm not sure what you mean by people not getting more money to spend - the day it was made law, plenty of people would suddenly have a lot more money to put towards a deposit. If I was a vendor, I know what I would do.
Don't get me wrong, I'm not arguing that what you're saying is wrong. I'm just turning it over in my head. I really can't see how it could not flow straight into higher prices but it may be the case that it doesn't.
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I wonder how a SMSF would go if required to foreclose a property occupied by a trustee of the fund??
Yes, it might raise some interesting legal issues as well.One way to look at it might be that for most people, superannuation is something that virtually does not exist until you retire. It has not previously been available for John and Jane average to spend on housing or anything else prior to the end of the working life (except in some very dire circumstances). I know that if I were to count super, my income would be bigger - but that's meaningless because I never see it and and can't access it to spend.
We would now have a situation where super becomes relevent from early in the piece - I will need to use income from my actual regular income stream for the remainder of my working life to pay back the first decade or so of my retirement savings, in addition to paying back the rest that was borrowed from the bank. If real income growth isn't enough then there seems an obvious way to pay it back - get on the property ladder and hopefully sell it for enough capital gain to pay back both the bank and yourself.
I would say the idea of this thing really is meant to ensure prices keep rising when once we can't effectively lower interest rates any further. Which isn't all that far away. Which is probably why our erstwhile treasurer appears to be seriously considering it.
Communications Minister Malcolm Turnbull has entered the fray over Australia's superannuation system, declaring any attempt to allow first home buyers to use their super savings for a deposit to be a "thoroughly bad idea".
"That is not what the superannuation system is designed to achieve," Mr Turnbull said following a speech in Brisbane on Wednesday.
"Housing affordability is a big issue in Australia but, as we have demonstrated over many studies over many years, this is a supply side problem."
Former Liberal treasurer Peter Costello and former Labor prime minister Paul Keating have criticised Treasurer Joe Hockey's idea but Mr Turnbull is the first senior government MP to publicly cast doubt on the merits of using superannuation for home deposits.
His position is also in direct contradiction to that of Prime Minister Tony Abbott, who, on Monday, said that allowing first home buyers to tap into their superannuation was a "perfectly good and respectable idea".
"I can remember back in the early '90s when I was helping John Hewson to draft the Fightback statement, putting in a suggestion to this effect," Mr Abbott said.
Mr Hockey has been undeterred by the criticism and continues to promote the idea that young people could use their superannuation savings to help buy their first home or pay for job retraining.
Asked about Mr Turnbull's comments, Mr Hockey told Lateline host Tony Jones there were a range of views on the issue.
"Ultimately, Malcolm Turnbull was absolutely right; the best thing you could do for the housing market is to increase supply," Mr Hockey said.
Jones persisted: "No, but let's stick with what Malcolm Turnbull actually said. He is talking about your plan. He said it's a thoroughly bad idea."
Mr Hockey replied it was "not my plan" but one "floated by numerous people in the community".
March 12, 2015 - 10:17AM, Jennifer Duke, Rachel Clun
So what's the answer to finding affordable homes for first home buyers?
Treasurer Joe Hockey says young people should be able to dip into their super, a suggestion criticised by some but welcomed by 33-year-old Edgar Pottumati and his peers.
NSW Labour leader Luke Foley says first home buyers should be able to pay off their stamp duty over five years.
The Domain team asked frustrated buyers what they think.
Emily Oak, 36, state operations manager
Oak had wanted to own her own house by the time she was 30 and was well on the way having saved a deposit. But when faced with the decision between investing in her career or a home, she decided to use her savings to buy a stake in the coffee-roasting business, Sensory Lab, she was working in.
Despite her budget of between $500,000 and $700,000, Oak says she wants to buy outside of Sydney.
"On top of having to pay rent where I live now and work, it's more realistic to have an investment property that's a smaller mortgage," she says.
Oak says superannuation should be left for retirement and not used to buy property, but she also thinks she may never live in her own home.
A single mum to a nine-year-old boy, Oak says if she ever bought in Sydney she would want to buy something near where she is currently living on the northern beaches.
"My family is there, my son goes to school there, and obviously my family is integral to helping me look after my son so that I can also work full time, so it would be nice to be close to my support network," Oak says.
"But it's very, very far outside anything I can even think to afford anytime soon."
Haydn Edward, 27, design engineer
Haydn Edwards wanted to buy his first home at the age of 22, about the age his parents entered the market. However, he says he's good enough at maths to realise how unrealistic it is for him.
University educated with two degrees, he was recently working full time hours on a casual contract in Sydney CBD while living at home.
"This year though I hit the 'abort' button after running the numbers and realising that unless I were immediately hired as a CEO I was going to spend most of my life in transit and still not be able to save up a house deposit," he said.
"So now I live less than three kilometres from the Perth CBD renting for less than half the equivalent in Sydney."
When it comes the Treasurer's proposal to allow young people to use super to buy property, he isn't convinced.
"Burning down your future security for a few bricks is a bad idea. If you have no liquidity in your assets and you encounter a life hurdle – like cancer – then you're properly screwed," he said.
Yasmin Shahatet, 29, customer service
Full-time shift worker Yasmin Shahatet currently rents in Auburn and also studies part-time.
"I receive a reasonable fortnightly wage and I've been saving for a deposit on a home loan for a few years," she says.
"I've looked into purchasing a home many times but loan repayments would be such a high proportion of my income, if I did take that leap it would mean not being able to afford things like private health care and my gym membership and ultimately living on very little after all the bills and tax.
"The only suburbs that I would be able to purchase a property in are further away from Sydney city where I work. This would impact my quality of life and increase my travel time from 40 minutes one way to up to 1.5 hours one way a day."
Looking for properties up to $400,000, a 25-year loan would cost at least $2200 in repayments, with electricity, gas, internet and food considerations on top.
"Every time I save $10,000 towards a deposit prices rise again," she said.
She is now looking at off-the-plan properties as they do work out cheaper.
"When you factor in a car loan/car insurance and petrol prices, the cost of living and all the monthly bills that come with owning a property in Sydney it almost feels like volunteering for a 25-year jail time."
Currently, she said that owning a property seems unattainable but that if she were given the opportunity to access her super she probably would, but then look to balance it by contributing more each pay cycle.
"Housing affordability is a big issue in Australia
I would agree with Malcom there.
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but, as we have demonstrated over many studies over many years, this is a supply side problem.
But I'm not convinced that the above is correct. I think there is some of that in the mix but the original problem lies in endlessly stoking demand. Easier credit, cheaper credit, grants and subsidies. Credit in particular is the main driver, the bank today will scarcely blink at lending John and Jane average a sum of money that absolutely dwarfs anything they would have loaned them pre-2000.
Housing is mostly financed by credit and on that front, John and Jane average cannot pay for a house a sum of money that they are unable to borrow in the first place. The easier it has become for the averages to obtain larger amounts of credit, the higher house prices have gone. If you make it possible for them to borrow more and more money for bigger and grander homes, most people will do exactly that. I wouldn't think that would be surprising.
"Now, at various points when we are in and out of work and we are changing careers, we may go back to study or to retrain. During those periods, we still have to pay the bills. We still have to pay the mortgages. We still have to pay to raise families and so on."
Super for a dep on a house is just the start. Drawing down super rather than receiving the dole is perhaps step 4.
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