Cormann rules-out housing super fix

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By Leith van Onselen

Finance Minister, Mathias Cormann, has ruled-out allowing first-time home buyers to access their superannuation to pay a house deposit, arguing that such a move would merely inflate house prices further. From The Australian:

Senator Cormann said the idea would probably put pressure on house prices at a time when people were concerned about housing affordability…

Senator Cormann countered the idea by suggesting it would only increase further.

“The purpose of superannuation is to provide an income stream in retirement,” he told ABC News24.

“There is a sole purpose test, which means that the reason you attract tax concessions as you make savings through superannuation is that those savings and the returns that they generate should be available to fund your retirement.

“Now for those who are concerned about housing affordability, pumping more money into the housing market by letting people access their superannuation savings more freely will not bring down the cost of housing; if anything, it would probably lead to further increases in the cost of housing.”

Cormann is, of course, spot on. If Saul Eslake’s 50 Years of Housing Policy Failure presentation showed us one thing, it was that demand-side measures aimed at promoting “housing affordability” and home ownership do not work. Despite the massive decline in interest rates and the myriad of subsidies to first home buyers, the home ownership rate has decreased over the past 50 years (see next chart).

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Under Australia’s constipated planning system, releasing super would be self-defeating as the extra capacity to pay would soon get capitalised into higher home prices. At the same time, younger Australian’s retirement savings would be compromised for little additional benefit, potentially placing further strain on the Aged Pension.

That said, similar logic could also be applied to negative gearing. Surely allowing investors to offset rental losses against unrelated income (along with capital gains tax concessions) leads to investor demand being much higher than it otherwise would be, driving up home values and reducing housing affordability. Why oppose accessing super but not negative gearing, since their affects on housing demand and affordability are similar?

If Cormann was truly concerned about home ownership, the best thing he could do is to lobby for an end to all policies that distort the housing market and force-up its cost. These include winding back negative gearing and removing planning-related bottlenecks, so that FHBs don’t get out-bid by investors and developers are better able to supply housing at a price that FHBs can afford.

It’s not rocket science.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. Note that actual outright ownership rates have dropped from 45% to the current 31%, so all previous policy has been a failure IMO.

    • yep, the specufestor recipe is “never sell” – keep the IO loan going forever and let inflation pay the place off.

  2. Please note the cycle here. A few weeks ago, the idea was raised, a debate ensured and despite energetic cheerleading by the usual vested interests, was lost.

    MB and the heterodox won.

  3. So why are they allowing SMSF to purchase houses for Christ sake. Using tax favorable super money for FHB to purchase houses will inflate house prices. So why the hell allow tax favorable SMSF to buy houses.

    Its ok to limit FHB access, but its ok to present an open playing field to the wealthy with tax breaks AND being able to buy up houses as well via SMSF ???. The sheer stupidity and biased self interest festering plague of political thought speak is on full display.

    • http://www.watoday.com.au/federal-politics/political-news/mps-push-back-over-new-restrictions-on-entitlements-20140930-10nyga.html

      “Concerns have been raised in the government partyroom about restrictions on politicians’ entitlements, including the abolition of the lucrative gold pass and fines for MPs who wrongly claim taxpayer dollars ”

      Just look at these wankers. Good policy that benefits the nation eludes them constantly. The idea they should be representing the people eludes them. The idea of real public service eludes them. They are happy to sit on their fat arses day after day when the nation needs them to rise up and deliver to the Australian public as they are elected to do.

      But if you dare to touch their “entitlements” then watch out.

    • http://www.watoday.com.au/money/super-and-funds/waistline-shrinks-so-does-the-super-pot-20140925-10lpga.html

      Well if you cant use it for housing then i guess you could use it for this.

      Ok just to be clear im not against people being able to access thier super for medical treatments. But what is the criteria here exactly, given that if you use your super for this, then you become further reliant on the taxpayer.
      I mean if you have a life threatening condition or illness you do have access to medicare here to pay for it dont you ?? Medicare does not pay for cosmetic treatments.

      So if you need to access your super for this, then it has to be cosmetic. Its not like she needed to travel overseas for a experimental life saving treatment.
      So i guess i can now go out and empty my super to pay for a nose job, butt cheek implants, lipo suction, pec implants, new teeth, acne scaring removal, hair transplants ….

      • Hahah! Clever girl!

        Knew a guy who purchased a house using his SMSF and he sub-lets it to himself. Not convinced its completely legit as it involves personal usage however its certainly preferable to being skimmed by either a) a super fund or b) by a landlord rent seeker for your whole life. Also allows enjoyment of the asset before reaching retirement age.

      • A member can’t occupy a house owned by the super fund, he would have to have a dodgy auditor let that through.

      • @cee: They are letting it to themself (or even friends) at sub-market rates, then it is definitely not legit according to the “arm’s length” rules. Even if it is being let at market rates, it probably violates the sole purpose test.

        If the ATO catches a whiff, that could be bad for the guy.

      • RP,

        Auditor may not necessarily be aware of the situation. Just speculating as I don’t know the particulars of the arrangement but guess it would be relatively easy to set up a bogus rental arrangement either using a friend or family member on the lease or just directly providing a false name on the lease to get around an Auditor. Involving a third or not-so third party property managers provides another layer of obscurity.

        Just another depressing indication of how dysfunctional the whole housing and superannuation system is.

      • Oh I’m aware of how easy it is to get around it, I’ve seen it myself.

        I’m just reiterating the legislation. They guy shouldn’t be so smug, if he does, he’ll have th make back an amount equal to the accrued tax concessions.

      • @RP Its the only case I have heard of so im not sure just how prolific this activity is. Have you seen many of these examples?

        @Commenter2095

        He seemed pretty chuffed to be in on the property bandwagon, and I gather the ATO is not much of a deterrent when compared to the potential capital gains and guarantee of stable housing.

  4. Wouldn’t this further disadvantage younger lower paid homebuyers, who by definition would have less super accrued?

  5. Allowing young people to access super to buy houses is the Govt’s ‘break glass in case of emergency’ card. Why spend it now when it can be kept up their sleeve for when it’s actually needed? See, the idea’s been floated now. It’s washing around in people’s subconscious. When it’s floated again, people will respond more kindly. Baby steps.