We now have almost 60 years of unambiguous and unequivocal evidence telling us that anything that allows Australians to pay more for housing than they otherwise would — first homeowner grants, stamp duty concessions, mortgage deposit guarantee schemes, shared equity schemes, preferential tax treatment for property investors, and indeed lower interest rates or reductions in credit standards — results, primarily, in higher house prices rather than higher rates of home ownership.
The scheme announced by the government on Sunday would, prima facie, enable singles to pay up to $250,000 and couples up to $600,000 more for housing than they otherwise would (based on the maximum amount people can take out of their super, which then becomes part of their deposit, against which they can then borrow up to as much as four times, assuming a 20% deposit requirement). So it will certainly have the same effect as the schemes I listed above.
And there is no annual cap on the number of people who can take this up — unlike the government’s deposit guarantee schemes, or Labor’s “shared equity” scheme announced during the election campaign. Nor are there any limits on the income of applicants, or on the value of the property purchased using the scheme. The only constraining factor is likely to be: how many aspiring first home buyers have that much money in their super?
This scheme will be warmly welcomed (as I have no doubt it is intended to be) by the 11 million or so voters who already own at least one residential property, and especially by the 2 million or so voters who own two or more properties. It may be welcomed by the much smaller number of would-be first home buyers who have the capacity to take advantage of it, although you’d want to ask, how many of them actually are there — and if a young would-be homebuyer has been paid so much that they have been able to accumulate that much super, why do they need to draw it down in order to buy a first home?
But it will be greeted with despair, I suspect, by the majority of the typically 100,000 people a year who succeed in becoming first-time buyers — and the presumably larger number who would like to but have been unable to become first-time buyers.
And it will be greeted with similar despair by those who, like me, have spent years wishing that politicians would actually learn something from the evidence of the past six decades.
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The policy, of course, also reflects the fact that the Coalition hates superannuation — because it confers greater powers and influence on unions than its declining membership would otherwise allow them to have — other than as a vehicle for allowing older Australians to pay less tax, as evidenced by the other policy announced yesterday of expanding eligibility to transfer house sale proceeds into superannuation.
Although the government says its policy won’t ultimately hurt people’s retirement savings because they’ll have to tip the amount plus the capital gain on it back into superannuation when they sell the property they’ve purchased, that assumes that residential property prices will grow at a similar or faster rate than a typical super fund.
That has been true over the past 20-30 years — but precisely for that reason may not be true over the next 10, 20 or 30 years. Moreover, people don’t normally leverage into super, whereas they do into residential property, so this scheme exposes people to greater overall asset price and interest rate risks than they would otherwise face, as well as possibly encouraging them to make what could turn out to be a bad “asset allocation” decision.
I want to scream, “This reckless inflation of house prices must stop!” But of course it won’t.
Disclosure: Contrary to the claims of Senator Jane Hume on Monday morning, Saul Eslake does not own more than one home.
Saul Eslake is an independent economist, company director and public policy advisor.
This article was first published by Crikey.