The best way to help first home buyers

Property Observer has a piece today on an effort by the REIA to stimulate housing:

The Real Estate Institute of Australia is urging the government to adopt a successful Canadian scheme that allows first-home buyers to tap into their superannuation to assist with making their first purchase.

The Canadian Home Buyer’s Plan has been in operation since 1992 and allows first-home buyers to withdraw up to $25,000 from their retirement savings plan to purchase or build a home.

The scheme has proven popular, with nearly 1.4 million Canadians withdrawing money from their retirement savings to participate in the plan between 1992 and 2004.

During this period, over 12% of Canadian first-home buyers aged 25 to 44 used the scheme.

According to the REIA, the Canadian scheme does not disadvantage the retirement plans of first-home buyers. Under the plan, funds withdrawn from retirement savings need to be repaid over a 15-year period so as not to impact the ability to enjoy a comfortable retirement.

The average age of first-home buyers in Australia is in the early 30s, with 55% of recent first-home buyers aged 18 to 29 and just over a third (34%) 30 to 39.

The institute has presented the Canadian plan to the government after it was floated at the October tax forum In Canberra by Nicholas Gruen, CEO of Lateral Economics.

And CEO of Peach Home Loans.

I’ve got an idea. Let’s pretend for a moment that housing is a market. That is spelled m-a-r-k-e-t. In a market, when price departs from the fundamentals of supply and demand – like, for instance, now – something happens. That something is that prices fall and keep falling until demand resumes and the market clears.

What a novel idea.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. Its not enough that they want people become debt slaves for life, they have to have our retirement funds now too?

    May as well just give the REIA our PIN numbers so they can p**s our money into the wind that much quicker.

      • Still doesn’t stop you feeling bad when you see mates jumping in head-first. And it’s such an ideological argument too, so they’re unlikely to take your advice.

      • Fair comment.

        On the other hand, everybody has to live somewhere. You either buy or rent. Both methods are more expensive than they should be for the reasons you have noted previously – arbitrary restrictions on land use and other interference by various levels of government.

        All this focus on figuring out ways for young people to get hold of more cash in order to purchase at inflated prices diverts attention away from the real issue – that Australian governments and the private building industry are doing a collectively shithouse job of delivering dwellings.

        I visited my boss in the US recently. He lives in a truly beautiful NC neighbourhood. Great house, nice big block. It’s no exaggeration to say I don’t actually know anybody in Australia who has anything similar (they exist – obviously – I just don’t have any multi-millionaire friends). Worth somewhere around 200-250K he reckoned.

        Buying or renting is up to you. But our elected representatives owe us an explanation as to why this is possible in the United States but not here.

        Ok, rant finished. It’s the internet – I’m not quite as much of a whinging bitch in real life!

      • dumb_non_economist

        no, you don’t, but it will likely increase the time it’ll take for prices to come down to a realistic level.

  2. HHOZ what a dreadful suggestion. If you’re advice were followed, well, prices may go down. Shame. In fact I am thinking of forming a pressure group to fight ludicrous realists such as yourself – we can call the group Reinflate Our Bubbles. ROBBs. Inauguaral and Honourary members would have to include REIVA. Members will of course be referred to as ROBBers.

  3. It’s been a nightmare of mine for many years now that some politician here in Oz will pick up on the “dip in to Super for home deposit” idea. A nightmare.

    • The BurbWatcherMEMBER

      Ditto.

      I’ve heard acquaintances talking about how it “should” be done, for about 8 years now….

      • Mining BoganMEMBER

        Yeah, my fellow bogans are big on the idea. They all reckon super is a rort anyhow.

        Incidentally, they’re all changing their super to aggresive, high risk mode. They have their reasons but it hurts my head to even think about let alone repeat it

        • MB People are driven there by lowering interest rates. They become more and more desperate for SOME income.
          Lowering interest rates is not the panacea everyone thinks it is.

        • Mining bogan I hear ya. Been working on a RC rig all week with a dude who has missed 2 target depths due to incessantly playing with his iphone. Asked the driller haughtily why he was so distracted, having a protracted fight with the missus or something, and he said ‘nah, looking at properties in Perth’. The dumb money is pouring in.

    • Why ? If it is structured so people are limited to how much they can withdraw, and it must be paid back into their super account within 15 years (adjusted for inflation or some nominal rate of return), then what is really the issue ? Their accounts wouldn’t necessarily have to be worse off 30 years hence. There are other ways of reducing pressure on demand (remove/reduce negative gearing tax concessions) and improving supply (town planning regimes, land release). If we want to improve inter generational equity vis house ownership, I say get rid of negative gearing (predominantly favoring boomers) and improve younger buyers’ purchasing power. Properly structured, this could be one way of doing it.

  4. Would there be an interest rate on this Super withdrawal? What if the FHB defaults on his underwater mortgage and cannot payback his Super withdrawal?

    Another issue is that the stock prices fall first and much faster than houses. In a worst case scenario (but not in anyway unlikely) people would be withdrawing from a smashed Super account, and leveraging this money to buy another depreciating asset. Then if they lose their jobs and default, they would have lost everything, and some. All just to keep the bubble from deflating a bit sooner?

    Terrible idea… However, I know that politicians will often rape and pillage before letting anything bad happen even one month sooner.

    Whether it’s accepted or not, it won’t be the last destructive idea to keep the market afloat. Let’s just hope that our leaders don’t succumb to the market tickers like all others have. With the toxic tactic the opposition is employing however, I am scared.

  5. I don’t particularly like this idea, it has been mooted before.

    I would rather that older employees (say 50 and over) who had sizeable super holdings be allowed to tap super to repay their home loan (if they had enough) and then pay a lot more into their super to offset the sudden drop in home loan payments, over the remaining term of their working life.

    Under the guidance of a trained adviser, that could have more benefits in the long run by eliminating the interest cost, reducing our reliance on borrowed money, and allowing about to be retirees position themselves for their retirement.

    • The BurbWatcherMEMBER

      …i get you…

      expect that many people will just use payed-down debt as equity to then leverage up on another property….

      ie. it will actually end up doing what many other govt interventions end up inadvertedly doing: what they didn’t intend to, and then made the problem worse… (eg. Rudd’s stimulus)

  6. I would probably despise the reasoning for bringing in such a scheme (to prop up an ailing property market), but if such a scheme were to REPLACE the first home owners grant/concessions then I wouldn’t mind it so much. I would rather First Home Buyers took $ from their own future to fund their house purchase rather than from a government handout.

    As The Prince has shown recently superannuation returns have been dismal the last 5 years anyway…

    No doubt if introduced the government would mismanage it’s implementation/rules and I would rue the day I said it wasn’t a bad idea.

  7. This is an absolutely terrible idea and violates just about every principle of the super sole purpose test.

    There are many unintended consequences here even aside from the obvious ones; for example, the big 4 banks all own large wealth management companies. I expect that should something like this be passed, bank advisers would be heavily pushing housing “investment” using super money.

    However i think its just a matter of time before the govt starts to tap the golden egg that is superannuation, whether it is to prop up the housing market or using it to boost infrastructure spending etc.

    PS: When i read through the block quote i thought to myself “OK now where is Gruen’s vested interest in all of this?”. It was handy that the next line confirmed my suspicions!

  8. I’ve not long bought a house through a convoluted process due to my finances (personal details) but there wouldn’t even be anywhere near enough in my superannuation for this purpose.

  9. If the superannuation could be guaranteed from losses then it would probably be a decent idea to lend out the entire superannuation savings. It would be like treating the superannuation as a lender (with appropriate lending criteria) and paying mortgage interest into your superfund rather than a bank.

    But there lies the problem. If you go bust then you lose your retirement savings as well. The existing scenario is easier, with super funds lent to a bank who pays a deposit rate, the bank makes a cut and lends it back at a higher mortgage rate, and the bank (read tax payers) inherit all the risk.

  10. I like this idea. Being a mortgagor in my 30s, my optimal financial strategy is to pay it off as soon as possible.

    As pointed out previously on this site, super fund returns are keeping up with inflation at best. Add in the legislative risk, and super is a very unattractive place to keep my money.

    Keeping your wealth mostly/entirely in your home has worked for past generations. With a helping hand from the government property prices have gone from strength to strength, and as long as politicians need votes, there’s no reason to think this pattern of intervention will change. And if the property market crashes, you still have a roof over your head. The same can’t be said for the standard super fund policy asset allocation which will see you get wiped out when the equity market crashes.

    I’d much rather have my money in my house than in super. After retirement it’s simple enough to draw down on equity if you need income. IMHO the current super arrangement is a nanny state policy artificially interfering in my financial situation, and keeping the financial sector fat at my expense.

    • of course u like it, you own a property, if this was introduced it would regnite the market pushing the value of your property higher. What about the 20-25 year olds with almost $0 in their super? how do they benefit???

      • The 20-25 year olds benefit by eventually being able to reduce the interest on their mortgage by using their super. Once they’ve entered the workforce and saved enough.

    • I’d much rather have my money in my house than in super

      Nothing like all ‘your eggs in one basket for the rest of your life’ strategy that’s for sure!

      • Not necessarily for the rest of my life. But for the moment. I can guarantee I’ll lose money to interest on my loan. But I can’t guarantee that my super will grow, or even not shrink.

    • “With a helping hand from the government property prices have gone from strength to strength, and as long as politicians need votes, there’s no reason to think this pattern of intervention will change.”

      This helping hand didn’t exist in other countries? Perhaps even some of those that have recently had a housing bubble burst?

      • Well our bubble hasn’t burst so maybe our politicians are smarter (or dumber) than those overseas. But it doesn’t really matter if the bubble bursts as I still need a PPOR. If the bubble does burst you can be sure that super will be hit just as bad.

    • There is just so much wrong (well, in my opinion anyway) with what you wrote I just don’t know where to begin.

      If you don’t like your Super investment, start a SMSF and do with it what you will. Because it hasn’t been performing doesn’t mean you should use it to distort asset prices elsewhere.

      Especially when that asset is not an investment. That’s right – your PPOR is where you live, not an investment. Look elsewhere for investments. Way to use your retirement investment for something that is not an investment.

      And seeing as you already own a home, it’s unsurprising you are a supporter of market interference that will do nothing but force up prices (as shown by the FHOB debacle). Think about the next generation of FHBs, struggling against government distortions to force up house prices.

      And just remember – the more the government distorts the market to force up house prices, the more likely it will be that we will see a bigger and more disastrous correction.

      All up, this is a truly, truly awful proposal.

      • It’s true I could start an SMSF, but AFAIK it still wouldn’t be possible for me to use my super to help pay it off and reduce my interest payments.

        For previous generations there’s no doubt that their greatest investments have been their PPORs. This is fact. Family homes bought in the 70’s, 80’s and 90’s have been fantastic investments and often represent the bulk of an individuals wealth.

        I can see why this is a sensitive subject, as everyone sees the potential for prices to be further inflated. But it’s a simple matter of perspective. You could equally say that the current super regime is artificially distorting the stock market or wherever else super happens to be parked.

        If there is a disastrous correction, at least I’ll have a roof over my head. And the FHB’s will be able allocate their funds as they wish.

        • I agree. If people accept the principle that super investors should have some autonomy over how they allocate their risk, then I can’t see why you would argue against the limited access to super to fund a residential property purchase. The debate about whether this is a ‘correct’ allocation of risk, or whether it props up the property market are completely separate issues. A SMSF can currently invest in racehorses – how is that a better investment case than using your super as a limited short-term loan facility ? An aggressive super fund can leverage itself sick on equity-market neutral strategies, currency forwards, futures, etc. How would this entail a risk profile worse than that ? This type of withdrawal would not necessarily leave a super investor worse off when they reach preservation age than if they left it in their default, equity heavy balanced fund. As you suggest, it is not hard to build a case that the quantum of super in the system is already distorting markets and being used to prop up other asset classes not justified by fundamentals.

        • Still completely disagree.

          A once in a generation (several generations, actually) asset boom (in house prices) does not make your PPOR an investment. An investment is something you can sell, say, without affecting your day to day life. That is not a house. You live in your house – might as well say an investment is a car, or your kitchen table, which may just happen to appreciate in value.

          Hitting the equity ATM card (equity, maaaaaate!) does not make your PPOR an investment, either. And not forgetting that we may be entering a correctionary period for house prices, or a long long stagnation. (And ignoring that a significant portion of the 70s and 80s house price growth was due to high inflation, an event much less likely now with inflation targeting from the RBA.)

          In fact, it is a MAJOR problem that a person’s house represents the bulk of their wealth heading into retirement. This is why we have Super. How will having little Super and high house prices help a retiree? I think you have it all rather backwards, to be honest.

          Now, let’s say giving FHBs access to their Super does inflate house prices, or at least, the house prices of the houses that FHBs buy (and I’d be shocked, SHOCKED, if it didn’t – and I have history on my side, thanks to the FHOG and FHOB both doing exactly that). So, going with what happened with the FHOB, we will have FHBs levering off their Super (to be used as a deposit), which will increase their borrowings by more than merely the Super they are pulling out.

          If the FHB now has to repay their Super, they have increased their borrowings AND Super they have to repay, all because they are paying more for the same place. It’s a lose-lose situation for the FHB in every way.

          I can tell you who wins with legislation like this, and it is NOT the FHB (or any sectors dependent on FHBs spending money, either).

          • If the funds borrowed are indexed appropriately and repaid, then the final amount of super will not be affected. What happens to house prices will be a factor of much more than this kind of measure. Whether repayments (of both mortgage and super account reimbursement) would be too onerous for a homebuyer is a separate issue, and would be taken into account in the lending criteria that already exists (mostly) in banks. To me, if such a scheme is properly designed, this is primarily a question of risk allocation, which investors are already free to choose.

  11. “Whats new” !

    Singapore has been allowing Singaporeans to tap into their super to put a roof over their heads for over 25 years !

    Singapore house prices have remained relatively stable during this period.

    • Yeah, but I believe that if you sell up, you need to put the money back into super, including any capital gain!

  12. Somehow, I don’t believe this Laterine Economics guy has the FHB interest at heart.
    .
    I hope the whole edifice collapses before they get the chance to implement this hair-brained plot to steal some more from Gen X/Y super to pay for baby boomer’s ponzi retirement scheme.
    .
    But I am not hopeful. Why? Because Pascoemeter is now bearish on property !! 🙂
    .
    $1 billion in distressed property on the block

  13. Seems like a reasonable idea – perceived conflicts of interest aside. Why prefer one overvalued market favoured by Super trustees/managers (equities) over another ?

    • Why prefer one overvalued market favoured by Super trustees/managers (equities) over another ?
      .
      Because one isn’t leveraged while the other is?
      .
      If you insist, you can still self-manage your super and blow it away on an investment property.

      • Or you could just blow it away on equities, leveraged or not. Leverage is just a different type of risk anyway, and the case against it is a separate argument. Super investors are already partly empowered to determine the level of risk in their funds as it is, and that may include a degree of leverage. Why shouldn’t an investor be able to bring forward a drawdown on their funds if they would ultimately pay that amount back ? It’s their choice, their risk. There is arguably more utility for them in the long-term in owning a home sooner than sitting on a slightly higher super balance.

        • The BurbWatcherMEMBER

          …or you could just put it into cash….

          Shares and property are NOT “savings”, as if the heart of the intention of “super”, IMHO…

          • Yep, you might be right. But this touches on much broader issues around the objectives and efficacy of super, risk allocation, and structural issues in the residential property market. To base an argument against this kind of scheme primarily on the premise it would only serve to prop up an overvalued market neglects those other dynamics.

  14. Not to mention the many advocates out there pushing for FHB’s to use parental equity for purchase. It’s just wrong.

    • Mining BoganMEMBER

      My fellow bogans buy houses for their children. They say it’s the only way the kids will ever own.

      But they still deny that prices are too high.

      Go figure.

          • There is greater help to be had letting the property market revert to mean by exerting downward pressure on prices than by buying regardless and exerting upward pressure on prices.

  15. Credit is declining (http://www.macrobusiness.com.au/2011/07/disleveraging-becomes-deleveraging/), and banks don’t make as much money in this situation …. so they’ll lobby for anything that expands the loan book.

    In the situation where you have your super with a major fund, and as we’ve seen for some time you’re better having that money in a bank. That being the case if you had some access to super for a FH then at least you’d have something to show for your labour.

    If we head for lower rates then a physical asset is better than money in the bank taking into account inflation.

  16. My grandparents lived on the pension for decades until they finally died… apart from the fact that they couldn’t have holidays when they wanted they did have a reasonable quality of life. As long as I have a roof over my head and food on the table in my retirement I don’t give a damn about anything else.

    Having said all that I would prefer to keep my super separate from the enormous gambles in the housing market presently – despite the possible losses in equity etc I’d feel much safer with it where it is.

    • As long as I have a roof over my head and food on the table in my retirement I don’t give a damn about anything else.

      You may not care, but baby boomers feel they are entitled to a Eurpoean vacation every two years in retirement

  17. The use of grants and tax-advantaged savings (Super) or tax-preferred losses (negative gearing) to assist entry into the housing market are the kind of things you might do in an emergency – when there is a lot of slack in the housing market, for example. But to make them standard features of the market is highly distorting and, ultimately, where artificial supply constraints exist, simply drive up costs and transfer cash from savers and taxpayers to property sellers/developers.

    As HnH suggests, the simplest and cheapest thing to do is to allow the market to adjust to levels where stocks clear, and to improve the supply-side framework. In the good old days, the sunk costs of land development – local roads, footpaths, water supply, sewerage lines, electricity and gas services – were paid for over many decades and funded on the best-available, State-guaranteed terms. These days they are funded up-front at retail interest rates, adding very substantially to the cost of new land and putting a high entry threshold under the market.

    This should be reformed gradually – say over 10-15 years – so that housing costs can be brought down.

  18. Build more houses where people want to live is a much simpler solution to the ‘affordability crisis’.

    It isn’t difficult and for the most part just involves pollies and the planners who think they can make a perfect city to get out of the way.

    If they did that and used a land tax instead of new housing killing development levies and stamp duties we would have plenty of new houses and the prices would adjust accordingly.

    People who have bought houses to live in might be unhappy if their houses falls in value but they will still have a house to live in. It is not as though they will sell up to realise a loss.

    The only people to really suffer will be the speculators who have bet their fortunes on a ponzi scheme.

  19. How the hell is that going help anyone in the 18 – 29 age bracket? My super accumulation wouldn’t be enough to make more than a 5% difference to the price, and lending against super savings would be, for want of a better word, foolhardy…

  20. The BurbWatcherMEMBER

    Crikeys….it’s just a private version of the First Home Buyer’s Grant…

    It will just than push up prices, or, at best, will stop/slow them from declining to where they would have otherwise, delaying the current inevitable.

    Sigh…

  21. There is no comparison with the Canadian plan to withdrawing from your super. The mandatory contributions into Canada Pension Plan cannot ever be touched until retirement and then only in the form of a regular monthly payment that the recipient has no say in the size of that payment. What is used for a house deposit is a Registered Retirement Savings Plan which is not a mandatory type of savings plan and can be withdrawn at any time and is fully taxable as income as it is tax deferred on contributions. Only if a person has gone to the trouble of opening one of these accounts can they draw it down for a house deposit.

    • +1

      This is a complete panacea and typical of real estate spruikers bending the truth, Canadian RRSP can be withdrawn at any time, the only benefit being for first home buyers that its not taxable in this case. This doesn’t compare in any way shape or form to Australia super which cannot be touched. Another factor is that typically RRSP is funded by individuals not entirely by employers (some employers part fund)

      Anyone interest should check this link:

      http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

      • Not only that, if you follow the link it appears that if you don’t repay the balance you withdrew after 15 years you will have to pay tax on it anyway.

        People need to check their facts.

  22. Hugh PavletichMEMBER

    By adding more fuel to the constrained housing market fire, will of course ramp up prices further.

    In essense, these young people will be making donations with their retirement savings to existing property owners. Reverse welfare if you like.

    But thats been the game all along of course.

    Heaven forbid that land supply should be openned up and infrastructure financed properly, so that young people could buy houses at 3 times annual household incomes or less – with mortgages at around 2.5 times.

    That would just be too simple and sensible.

    The welfare of existing home owners and the Banks with the grossly excessive mortgages, is far more politically convenient.

    • So perhaps consider this type of scheme contingent on governments concurrently addressing issues of land supply and phasing in reductions in negative gearing tax benefits ?

      • The point we are trying to make is it isn’t being considered in that light, nor is there even the slightest hint they want to address the supply side. It is just more of the same demand side stimulus that has helped push prices to record levels.

        Quite frankly, if they did get serious about supply side, there wouldn’t be the need for anyone to dip into their super in the first place. It’s only because of the bubble this idea has been floated in the first place.

    • +1

      If they want to mess with super for the benefit of FHB, why not remove the SMSF capital gains tax exemptions rort that is all the rage.

  23. As Minsky argued cogently, that as more income goes to the financial sector the system becomes more unstable. It will be a perfect gift to politicians to have husbanded such wreckage, and with it, the blowback on all political careers.

    • http://www.australiandebtclock.com.au/history

      Housing debt to GDP… mind blowing. And obviously housing debt = banking cartel assets. As Kenny Rogoff (rather mildly) put it in the preface to his indispensable tome This Time Is Different, “If there is one common theme to the vast range of crises we consider in this book, it is that excessive debt accumulation, whether it be by government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom.” Indeed.

  24. Actually I found the comment about ‘market’ the most amusing. All of this ‘fiddling’ around the housing ‘market’ is pointless. What has underpinned the global economy especially in the West namely the unfettered creation of debt is busted – Hubbert is a useful reference here.

    The property ‘market’ is merely a construct designed to excessively reward a narrow band of groups rather than benefit all of us and it relies on a perpetual and never ending growth model fuelled by debt otherwise its contradictions will it result in it collapsing in on itself – there is no market. This is starting to happen and no matter what silly ‘schemes’ are put in place the collapse is inevitable will accelerate. It reminds me of the quote by Lucius Anneaus Seneca who wrote that “increases are of sluggish growth, but the way to ruin is rapid.”

  25. I dont believe residential property should be an allowable asset in SMSF, let alone being able to access your super to purchase property. In reality this where it will end up at retirement with the level of debt people need to purchase property

    • The idea is not to allow residential property as an asset within in a fund, but to allow investors access to a portion of funds towards purchasing a PPOR on the condition that it is repaid back into their account. As long as the repayment amount is adjusted by inflation or a cash benchmark, then the investor is effectively just choosing to receive a cash return on a portion of their super for a limited period of time. What is the issue in that case ? That is a risk allocation decision super investors already have.

    • Even without SMSF, I believe most funds invest a portion into property anyway, I read 10%? somewhere, so I think super is already contributing to the bubble.

      Aside from that, this whole idea of using super for a deposit totally undermines the intent of super in the first place, retirement savings to be spent in retirement, not to be used as more demand side stimulus that will be immediately capitalised into higher prices, and thus gifted to existing landowners.

      It’s a very bad idea, thus has quite a good chance of being implemented.

      • No-one is concerned about super distorting private equity, infrastructure or other real assets, to say nothing of secondary equity markets.

        You’re assuming that it would be immediately capitalised into higher prices – there is no reason that has to happen if this were to take place within the context of urban planning reform, measures to improve land supply, revisiting the level of tax concessions on negative gearing, and removing the existing FHB scheme. If the funds accessed are repaid indexed to an appropriate market return, then an investor wouldn’t have to be any worse off at preservation age – they would still have the equivalent amount of funds available for spending in retirement.

        Why prefer demand side stimulus from increasingly expensive offshore borrowing ?

        Still fail to see why, of itself, this is not a reasonable idea.

        • And what urban planning reform (helping supply), measurements to improve land supply (helping supply), and revisiting the level of tax concessions (reducing demand) have been mooted along with this Super proposal? That’s right – none.

          Even with these proposals / changes you suggested, the Super proposal does the opposite of the above – it increases demand, giving people more money to spend, counteracting the proposals. In a more balanced market, the FHB (the bottom tier entrant) should not help entering the market. This in itself should tell you that there is a problem, and giving them funds (the Super proposal) is not the solution, fixing the other distortions is (the other proposals you had).

          In all other cases of the government doing this in a market (especially the housing market) it has merely resulted in the buyers using the government interference to increase prices, resulting in a win to the rent seekers. This has been especially true of housing grants – recipients use the grant as a deposit to lever up further for the same property.

          As such, it’s not even a zero sum loss for the FHB (as I mentioned above), as they have increased debt repayments from their more levered borrowings, AND they have to repay their own Super.

          Hence why, of itself, this is not a reasonable idea. Hence the reason why only the vested interests are pushing it.

          • To be clear, I’m not suggesting such an idea be implemented in the absence of broader reform in other areas which would help supply to respond more effectively. As you know, demand will result from many more variables than this, so it does not necessarily have to follow that this would just act to bid up prices. I don’t agree that an investor would necessarily be any worse off from taking advantage of such a scheme. I am arguing for the principle of the idea, which to me is primarily about the flexibility of super to accomodate different risk preferences, which is consistent with the current regime. There is the possibility of other beneficial secondary effects, but clearly negative effects also. The design and implementation are separate issues from the principle. I don’t doubt vested interests will be all over it, but there’s nothing new in any of that.

  26. Correct me if I’m wrong but there is nothing currently stopping someone setting up an SMSF and buying residential property within it.

    The only difference here is the use as a principal place of residence, which violates the sole purpose test.

    There are two issues here: first: flexibility within super (which already exists, even if most people don’t know it does), and second: whether people should be able to use super to fund a PPOR purchase.

    On the face of it I can’t really see a major problem other than if the sole purpose test is relaxed for one asset then it should be relaxed for all assets (something I disagree with).

    The main problem is the context within which this proposal has surfaced – to keep the property bubble inflated. When will people start to realise that the critical factor in affordability is PRICE, not the number of hair-brained schemes you can come up with to rob future consumption to pay for over inflated assets now. The more things like this they put in place, the greater the repercussions of the (inevitable, IMO) correction. As the OP said, the market is trying to function here, stop messing with it!

    • If PPOR was allowed to be pruchased within a SMSF, it would pretty much change the instrinsic value of housing forever.

      Ultimately gaming this situation would have everyne salary sacrifice $25,000 a year, just so they could fund $25k(1-t)at the 15% super tax rate instead of their after-tax marginal rate.

  27. Real Estate is only an “investment” for the wealthy or the savvy trader. A simple strike of capital for the next two years will fix the problem. RE development is non-competitive and I suspect corrupt in this country. Land Banking is funded by the mug punters. A strike for 12 months by first home buyers would correct a few problems. It is time the “Developer” business model was tested by disruption.