Another lunatic FHB solution

From the ABC, the lunatics are in complete control now:

A Federal Government MP has devised a “creative” solution to the housing affordability crisis.

Andrew Broad, the Member for Mallee, wants banks to forgo a deposit from first-home buyers who have a three-year rental history.

He argued if the mortgage repayments were roughly the same as the buyer’s rent, the bank should not need security.

“I think it has serious potential,” he said.

“Essentially what a bank needs to do is see that a person has the capacity to service a loan.

“What a government needs to do is make sure a person who wants to purchase their first home can get into the property market.”

Banks and financial institutions usually require a 20 per cent deposit, which Mr Broad said was locking people out of the property market.

He said he had heard from people in his electorate who simply could not afford to save that much money.

The Prime Minister tasked the Minister Assisting the Treasurer, Michael Sukkar, to focus on housing affordability.

He has not ruled out a crackdown on capital gains tax concessions for property investors, but Labor’s policy of tackling negative gearing is off the table.

Mr Broad said he had floated his proposal as another way to make housing more affordable.

“There’s a lot of receptiveness to this,” he said.

“This is the space that creative governments can play in, rather than the very populist but unrealistic rhetoric of getting rid of negative gearing.”

“Very populist but unrealistic rhetoric of getting rid of negative gearing” versus FHB’s having no deposit, no equity, no buffer, 100% LVR and a banking system on the verge of collapse if the wind shifts direction ever so slightly and those same FHBs sink into eternal debt slavery and poverty.

Nice smile, though.

David Llewellyn-Smith
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Comments

  1. To quote Footsore in the Anna Bligh thread:

    “This is the equivalent of a junkie struggling to tap into a vein and beginning to think that injecting into the eyeball is a good idea. “

  2. Lucy Ellis says FHBs don’t actually need a 20% deposit, just find a bank that doesn’t care, and/or borrow it off their parents. And if they can’t they can always just keep renting. See, plenty of options. Affordability is all a big furphy.

  3. It’s not the need to have a 20% deposit that’s locking young people out per se – it’s the fact that housing has become so expensive in our two biggest markets and continues to get more expensive rapidly that even saving up a 20% deposit is getting out of reach for many.

    We saved a 20% deposit on two very modest incomes without difficulty at the end of the last century because housing was signiifcantly more affordable than today.

    But anything to keep feeding the Ponzi scheme I guess.

  4. reusachtigeMEMBER

    Not only should this policy be implemented, the government should put $50k towards the initial loan repayment so that first home buyers have $50k in equity that they can borrow against to buy goods to fill their new house. Anything to help young people experience the joys of property investing can only be a good thing. No right minded person would argue against this idea.

    • Indeed!! To make them even more beautiful, the 50k can then be withdrawed as despoit to buy an investment property!!

    • Why would anyone spend $50K on goods to fill a rental. Don’t you just pick up an old stove from the Salvos? Or are you thinking the young FHB might rent the property out to themselves?

    • Nice. Sucking in more consumer goods from China to further erode the balance of trade. No worries as we can continue to borrow as Australia is different.

    • Just like -VE interest rates, only crunchy.
      Pay the buggers to buy houses and, while were at it, let’s introduce that UBI thing also – pay everyone to consume. You gotta wonder, when consumption becomes funded by state debt, is it still capitalism?

  5. The problem is the population is still blinded by the light of property not falling for 25 years. The people of Perth are finding out that is a myth at the moment but I still hear “I can’t sell my property” which is really “I can’t sell my property for what it will take not to make a lose” from friends in the west.

      • @travis – responding here to your comments in the Aussies giving up on home ownership:

        Your broad technical understanding of the limits of China’s rules for individuals are indeed correct, but as with everything, the devil is in the details. As I stated, my friend has been exporting to the US for 20 years. The first question that always needs to be asked is how are they doing this? What corporate structure and do they derive an income for themselves or child in any of these entities…. In order to manage his business in the US, he has an offshore Delaware LLC that handles the trade and pays him a salary in the US to a US bank account. Taxes on this income are paid every year to the IRS and this income is not taxable in China. His interest in the purchase here has corresponded with an FIRB application to spend up to $3 million on new HOUSES not APARTMENTS. As the funds he holds are in the US not China, the only restrictions in play are from the US Banks who require the purchase contracts to authorize the transfer.

        And how the money is made is entirely relevant inside China. While the process takes time, were he a property developer, his business can legally apply in China to purchase this land and upon obtaining approvals, his company can remit the full amount in USD as he can demonstrate tax receipts for the funds plus an on going source of foreign income (USD) back into China each month.

      • @ OJ – fair play if your mate is remitting from the US, no dramas. My point was if the cash is coming from inside China and, as you point out by your property developer scenario, they don’t have the Chinese authorities domestic signoff. Sadly more is not made of the >USD 50k amounts flowing in from the average punter. As the point has been made elsewhere historically (by Patrician I think ?) Australia has not signed up to bring real estate agents/lawyers/accountants under the money laundering protocols in the Paris agreement and this washes itself out with no oversight on the foreign bidders at auctions. Remember that the incremental bidder with his “laundered” cash sets the new outsized market level.
        Fair play on your mate if he has the FIRB approvals and the cash is not domestic China sourced.

      • @OJ: appreciate your posts on China mate, always educational.

        If you get 20 minutes free, watch this: https://www.youtube.com/watch?v=v0JHDr1oT0Y (or do what I do and increase the speed to 1.5x or 2x for less time).

        This video was important for me. It helped cement an understanding that humans are very intelligent and creative. No matter how clever you might be, you are only one, and your defenses WILL be breached by someone from within a group of people who are motivated to breach your defense.

        Like trying to use your hands to block all the water leaking out of a sieve. We can’t stop all terrorism with more security, we can’t stop all hackers with anti-virus software and firewalls, we can’t stop all software bugs with better integration tests, and we can’t stop all capital flight with more regulation.

        I know that to be true. It’s inevitable that the Chinese government will fail to stop motivated businessmen from participating in black-listed foreign activities, but what I don’t know are the intimate details of how they do it.

        You’re like the guy in that video, the instructor explaining HOW the students cheated. Much appreciated!

  6. I read this yesterday and thought “This is one of the least ridiculous FHB/housing affordability suggestions I’ve read in a while”. And I actually felt slightly happy about that!

    Yep, it’s that bad 🙁

    • Get ready for a lot more in this vein. The insistence that affordability and ludicrously high prices must co-exist is going to lead to some staggeringly complex and doomed-to-failure financial “innovations”.

      • If we could engineer rapid inflation, particularly wage inflation, for a few years and hold nominal prices stagnant, or rising well below the inflation rate, that could be a way of maintaining the high nominal price, yet deflating the real price and improving affordability without causing a massive deflationary recession. This doesn’t look likely at the moment.

      • Wage inflation? That sounds like something unions would demand. Current government is ideologically opposed to wage rises as it eats into corporate profits. They don’t seem to get the connection with aggregate demand. Perhaps they believe everything can be fixed with lower rates.

  7. For the new working poor these houses are unaffordable at 3% deposit and 0% interest rates. The 30 year mortgage which is the government backed enabler of this madness has nearly run its race. Everything will be fed into the furnace to keep this alive.

  8. Wow this guy Andrew Broad is a genius – he should let the bank credit teams know that they have no need to require a deposit, because nobody ever defaults on their mortgage, and property prices never go down. How did they not realise this before?

  9. adelaide_economistMEMBER

    Oh boy. No wonder these guys and gals only ever get jobs where they aren’t actually required to know, do or achieve anything except vote at the right time (and some struggle with that).

  10. TailorTrashMEMBER

    This is a thourhly splendid idea but it just needs Mr broad to tweak it a tad . He needs to agree that his parliamentary pension and that of all his colleagues will be put up as gaurantee to absorb as many default deposit free loans as are required until his and their entitlements are fully exhausted .

  11. You know it’s the dying stages of a bubble when they roll out these suggestions. Must sacrifice more to the ponzi… the ponzi is hungry.

    • When young FHBs are allowed to access their super for a deposit, we will nearly be at the end. But probably not before IMHO

      • Sadly I agree… that’s when you’ll know we’ve reached peak stupidity and it’s likely that the common idiot on Facebook will say it’s a good idea too!

      • I agree. I believe politicians still have more ammo at their disposal to keep the status quo (more immigration, relaxing FIRB rules etc). I think wholesale raiding of the superannuation pot will happen, but only when they are truly desperate.

    • Waves of greater fools rush in – bit like light approaching the event horizon of a black hole. Only the black hole is a financial abyss.

    • 1: search for every pot of cash out there that’s not sunk into housing debt and find a way to convert it into the game.

      2: when local pots of cash can no longer be found, find a way to open the door to international pots of cash

      3: when no more international pots of cash can be found, think of every way possible to pull demand from the future into the present (and be extra-fucked in the future).

      4: when no future demand can be found, rely on the government to run up enormous government debt to replace private sector deleveraging

      5: when government debt simply can’t run up any higher, start selling off all government assets to foreign buyers

      6: hand over sovereignty to your new lords and masters

      7: get back in the dirt peasant.

      (* or just get involved in a big fuck-off war during the reset process)

      Australia still has a long way to go. I stand by the call (often made) that our public debt goes to +150% of GDP before this is through.

  12. “There’s a lot of receptiveness to this,” he said.
    I’d believe it. Insatiable buyers with debt and pro bubble types love this innovative stuff!

  13. So he directs the banks not to require a deposit?
    That’s the plan?
    Malcolm must have given him the ok to go public with this insanity.
    MP lol
    God help us

    • Must boost the present
      Must….bring….forward….demand.
      Must kick the can

      (SHH, don’t let the future know where their demand went OK?)

    • Two questions. Who’s funding Certainty Wealth and what interest rate do they charge on this scheme?

      Reeks of 7% cash deposit rates on offer in the MSM……..low risk, backed by Australian property.

  14. This is just another indication that the government is driving the country toward the edge of the abyss and they’ll walk away from the wreckage and devastation with their comfy entitlements and promises from big business! I continue to hold out hope that this all implodes on Do-Nothing’s watch but alas, the government will pin rates to zero and throw helicopter money at it before running out of options. I will continue to rent patiently…

  15. If the banks don’t require a deposit, what happens to their risk premiums? Who’s paying for this? Surely foreign lenders might get a little toey here, unless of course there is so much cash globally looking for a positive return, they’ll take anything.

  16. Someone above said “when you have access to super to buy your house you’ll know its over”. To some extent of course the spruikers have been sucking punters into buying properties through SMSF’s & borrowings in their super? So super for housing has already arrived in part.

    • Yes, I’ve chatted to people at BBQs who got suckered into apartments in “up and coming” Brisbane suburbs and have lost money already. Once they realised they had lost money, they went back and read the documents and realised they had signed something giving the spruiker a handy commission on the apartment sale. They were in the tough spot of deciding whether to cut losses and sell now, or hold on in hope of a recovery. But that comes with rising risk as more supply comes on the market as there are more apartments in the construction pipeline.

  17. Agreed it’s a dangerous and terrible idea given the current environment.

    But I’ll play devil’s advocate because the following is the main argument they’re going to make. Practise defeating the argument here so you can smash it when you see it elsewhere :-p

    If rents are very high relative to income then how are you supposed to pay the rent AND save for a deposit?

    You might have a secure job and a perfect credit history, but unless you move back in with the parents, or cram more housemates in to split the rent, then you’re trapped renting.

    • I’ve got a few answers to that, but they all involve reasoning and the forbidden truth that housing does not always go up. Since both of these things are banned from discussions about housing in polite company I’ll just have to excuse myself when that nonsense you’ve proposed pops up.

    • I was about to call Fake News, a puff piece on behalf of realtors to try to convince more buyers to get in, but then they specifically mentioned a boost in bids just below the FHB boost threshold so…..FFS.

      Seems like it’s just like what “danflood?” mentioned in another thread. When buyer support comes in, the first people to take it up are the most wealthy (who don’t really need it). They’ll be the ones hitting the ask right on 750k.