Morrison feeds more first home buyers to property meat grinder

Over recent months we witnessed the Coalition and Labor launch a raft of new “housing affordability” policies – from home loan guarantees to shared equity schemes – aimed at driving more first-time buyers into the housing market and propping up housing values.

Yesterday, a desperate Scott Morrison announced that if re-elected, the Coalition would allow first home buyers to withdraw $50,000 from their superannuation accounts to use for a housing deposit:

The great Australian dream of home ownership will be unlocked sooner for thousands of first home buyers who will now be able to harness their superannuation to get into the property market.

Under the Super Home Buyer Scheme, first home buyers will be able to invest up to 40 per cent of their superannuation, up to a maximum of $50,000 to help with the purchase of their first home…

“Our Plan for the future is focused on supporting more Australians to realise their dream of home ownership,” the Prime Minister said.

“Super should be harnessed to support the aspiration of many thousands of families who want to buy a home…

“The Liberal and National Government are fundamentally committed to helping more Australians achieve their dream of home ownership,” [Housing] Minister Sukkar said.

As expected, the Housing Industry Association (HIA) applauded the policy:

“The Liberal Party’s announcement today that if re-elected they will allow Australians to access up to $50,000 from their superannuation to fund a deposit to help them buy their first home is a welcome one, and an initiative that HIA has championed,” said HIA Managing Director, Graham Wolfe.

“Access to finance for a deposit is the biggest obstacle for Australians trying to buy their first home, especially those paying rent while saving for their deposit.

“This scheme builds on the many positive home ownership schemes now in place to support first home buyers achieve their aspiration to own a home”.

But Chris Joye tweeted that the policy would be highly inflationary to house prices:

Chris Joye Tweet

Joye’s view is supported by last year’s modelling from the Labor-aligned McKell Institute, which estimated that allowing first home buyers buyers to access $60,000 from their superannuation savings to buy a home would “place significant inflationary pressure on house prices in Australia’s major cities”, as shown below, and would “lead to increased household indebtedness”:

Superannuation impact on house prices

Previous Coalition MPs have also junked the policy. For example, former Finance Minister Mathias Cormann said the following in 2014:

“Increasing the amount of money going into real estate by facilitating access to super savings pre-retirement will not improve housing affordability. It would increase demand for housing and … would actually drive up house prices by more.”

Former Prime Minister Malcolm Turnbull also labelled access to super for housing a “thoroughly bad” in 2016.

I am an open critic of Australia’s compulsory super system and believe it needs fundamental reform.

However, allowing households to tap their super savings to buy a home would be a self-defeating policy. Like all demand-side measures, the extra purchasing power would quickly be capitalised into higher house prices, resulting in no ‘affordability’ gain and the downside of having less funds available in retirement.

The fact that home ownership rates have plummeted over the decades despite a conga-line of demand-side subsidies from governments proves that these policies are counter-productive.

Australians are already highly indebted and house prices have inflated to absurd levels. Do we really want to make the situation worse by pouring superannuation fuel on the bonfire?

The Coalition’s latest demand-side gimmick might play well with the electorate and property lobby, but it would make housing affordability and retirement outcomes even worse.

Fortunately, Labor does not support this policy, which means it is unlikely to see the light of day. Be grateful for small mercies.

Unconventional Economist

Comments

  1. reusachtigeMEMBER

    Anything that gets more young people on the ladder is a great thing. It will also help the next super supreme salatious boom achieve greatness and this is what all good and right thinking people want! Home ownership for the young and another housing boom! It’s great!!

  2. Muttafukaburrasaurus.MEMBER

    Try getting any assistance if you’re a owner builder who doesn’t want a shitbox in the metro slums

  3. pfh007.comMEMBER

    Dont be too hard on the Liberals.

    It is not as if the ALP have made any commitment to reforming the farce that is our public monetary system.

    Given that so many economic commentators are committed to supporting a privatised, private bank centered model of public money, it is more than a little hypocritical when they complain about our major political parties announcing policies to “goose” that model just a little more, especially when they are doing so to keep it alive.

    It seems like only yesterday that folks were demanding that the RBA engage in QE, TFF and ZIRP/NIRP just to keep the broken monetary relic of the 19th century (a public monetary system built around bank credit) gasping along for a bit longer.

    It was only yesterday that folks were insisting that any attempt by the RBA to wind back the support for the dead horse was an act of lunatics.

    When people complain about the Liberal Party goosing the housing market with access to super it is a bit like people complaining about the Australian Wheat Board offering specials on wonderbread to maintain demand for Aussie wheat.

    All they are doing is complaining that the government is not manipulating the allocation of capital for some ‘better’ purpose. The problem with this argument is that when it comes to manipulating the allocation of capital there are a bunch of home owners who love what the government is doing. The only way of solving that problem is by reforming the monetary system.

    It is time to fix the problem……… though even just talking about it would be a good start.

    • It won’t happen voluntarily. Any realistic conversations will only come after a crisis that hurts the tradie brigade.

    • Correct, the housing body is going into cardiac arrest. All these last minute ditches to keep the game going are akin to a defribulator being applied to the body as it slowly slips away. It might cause a small heart beat or 2 but eventually this patient will die.

    • kiwikarynMEMBER

      Probably the only difference between Libs and Labour is that the first wants you to spend your own money to buy a house, while the latter will probably just tax other people more and increase the FHB scheme in an “equitable redistribution”.

      • 100% this.

        LNP = access to their own money for *all* FHB, to give them a leg up into their first home.
        Labor/Greens = create a whole new bureaucracy, funded by the taxpayer, with the sole purpose of taking a government stake in the homes of 10,000 people per year.

        • drsmithyMEMBER

          The first is mostly a tax dodge for higher income earners and their relatives.

          The second is about helping normal people buy homes.

          They’re both terrible policies in their own way, but one at least is aimed towards the bottom of the socio-economic heap rather than the top (and could be made substantially better simply by restricting access to FHBs and new builds only).

        • You spelled it wrong:

          LNP = access to their own money for *all* FHB, to increase demand and the amount of debt they can secure to increase the amount paid to existing homeowners. Twofold effect of instantly adding $50k to the base price for FHB level properties – making them even more unaffordable for those that don’t have the $125k in their super balance – and secondly likely resulting in fewer FHBs overall being able to buy into the market.

          I’m not saying the Labour policy is good, but through it’s design it is almost guaranteed to increase FHB ownership rates more by having a less inflationary effect on the market. I.e. Not making the market more unaffordable.

          Choose to support the LNP or desire housing affordability. You can’t do both.

          • Leroy Huggins

            How on earth do you think the government taking an ownership share wouldn’t pump up house prices itself?
            It increases the number of people that can pay, and it increases the amount they can pay, and increases the amount the seller can receive (for properties in the eligible price bracket)… which in turn increases the ability of those home SELLERS to upgrade and pay more for their next purchase. Both policies are inflationary when it comes to house prices.

          • @Leroy,
            100% agree with you that they are both inflationary – as I mentioned in my comment I said the Labor policy won’t increase prices as much due to the way it is structured. Unfortunately in Australia (and in most polities) you choose who will do the least damage not the most good.

            The LNP policy is unrestricted and will give anyone with a super balance more room to borrow and juice the market more broadly. Labor with a new bureaucracy and limited places will take longer, impact fewer transactions and have a smaller effect.

  4. Display NameMEMBER

    Lets do it. It almost doesn’t matter anymore. It will make the conflagration even more spectacular when it implodes. It will be a textbook case discussed in economics classes on how to totally f*ck your economy, hollow it out, destroy productivity and disenfranchise a generation.

  5. kiwikarynMEMBER

    You only need to look at NZ to see what happens to house prices when you allow people to raid their Super. Here they can take out ALL of their KiwiSaver funds to buy a first home. Which totally defeats the point of having Super as even if they spend the next 40 years contributing to it, they will still not have as much money as the person who contributed for 10 years and then stopped contributing for the next 40 years. Compound interest is a real thing!

    • I'll have anotherMEMBER

      Yeah nah.

      If you pay rent your entire life as opposed to paying off an inflatable asset, you’re going to end up with more money owning a house than making super contributions.

      Super can’t keep up with the cost of renting over a lifetime sorry. Some years super can’t make money at all. Last year having super cost me over $2000 and made zilch. My mortgaged house went up approx $75k in value.

      Might need to rethink your opinion on superannuation.

  6. kierans777MEMBER

    The only two things that matter if the ALP wins on Saturday are a Federal ICAC with a massive budget and media reform. Otherwise Albo will be a one term PM as the Liberals clear the chaff and we’ll be stuck with them for another decade and they’ll undo reforms in any other area.

    • More than likely ALP be a one term gov, assuring rescission hits next year, or worse depending on China, which Libs will easily be able to spin as Labor’s poor economic management, despite their massive debt burden their LNP created, the forearm distorting of a true housing market etc

    • Leroy Huggins

      An ICAC would do nothing. There problem with the politicians are not their grafts and deals, but their ideology that is at right angles to the needs of the majority of the population. And this goes even more so for the Greens and Labor.
      We need very low immigration, and the (re)building of national pride and “can do”. An ICAC doesn’t touch this, and would intentionally be too toothless to really get into the rot. It is theatre only, designed to create the impression of doing something, while even greater rorts are enabled.

  7. Perhaps this policy is actually designed to boost prices(at a time of prices softening and facing strong headwinds) rather than improving affordability (which it won’t because of you can’t have it both ways).

  8. We need a short “explainer” vid on YouTube /TikTok aimed squarely at the younger generations with short attention spans.

  9. I'll have anotherMEMBER

    I predicted they’d do this on this website about a year ago.

    Pretty obvious strategy and in my opinion not a bad one. Whilst I accept the consequences that home affordability will suffer and without even mentioning the wealth transfer facts LVO has consistently done a great job of letting readers know about, the less money Australians are made to lock away in Super, the more control they have over their own destiny.

    It is their money afterall and any arguments about pension / welfare sustainability need only look at the many articles where Leith has highlighted that if you were genuinely concerned for the economy, you’d stop giving billions away to asset rich millionaires with their hands out.

    • It isn’t. Until you realise inflation didn’t exist only year ago. That 50k will be eaten up by the rate rises to match the inflation in no time.
      Different in a low inflation environment.

      • I'll have anotherMEMBER

        The inflation will also turn your current super balance into a 2 week grocery shop at Woolworths depending on how bad it gets and how well the money is invested.

        You can’t predict house prices and mortgage interest rates but you can predict paying rent your entire life if you don’t end up owning a house.

        • Jumping jack flash

          “The inflation will also turn your current super balance into a 2 week grocery shop at Woolworths depending on how bad it gets and how well the money is invested.”

          That depends on whether they can/will continue debt expansion or not. It looks like they’re stepping on their glorious debt economy’s neck.

          And I don’t know why, it is absurd. It makes no sense whatsoever.

          Our banking masters spent 2 decades carefully crafting and tuning their debt economy, only to destroy it now, while the key to unlocking infinite debt – the solution to their problems – is sitting right there! They even implemented phase 1, which was unprecedented stimulus to create additional demand, spending and then jobs and wages.

          It looks like they’re pulling it without waiting around to see whether wages would even start inflating from the stimulus spending or not.

  10. Mr SquiggleMEMBER

    Fuck me, I just became a labor voter.
    This is appalling policy. $50K in super at age 30 could become $150K if invested in a balanced fund in super until age 60.
    Not only will $50k from super drive up the price of first home buyer opportunities, it will leave the buyers with less money in retirement.
    As MB has been saying for years, real estate drive politics in australia. now even Superannuation is being seconded to support house prices

  11. I’m struggling with the politics of this announcement. If they thought it was a genuine vote winner, why would they release it so late – maybe to fit within a narrow band of it sounding superficially attractive to young voters before it gets trashed by most economists and the media? If so, that is a very line line to tread, made even harder by the record high pre-polling.

    • I think it’s late cos it’s a hail mary, last gasp. General consensus even from many on their own side is its self defeating.
      Had to try something to get the 25 to 40 yr old vote, cos I think it was trashed, probably still is.

  12. Jumping jack flash

    Access to super to use to obtain more debt?
    I guess everyone knew it would come to this.

    There are a couple of glaring problems with this and it reeks of knee-jerk:
    1) The debt ship has sailed and we have rising interest rates which means that fewer people than before will be eligible for the amounts of debt that are required.
    2) We missed the [COVID] stimulus boat to boost demand and raise incomes to use to obtain more debt [at higher interest rates],

    Now, long after both of those ships have sailed, we’re trying to use the “super dinghy” to try and catch up to them.

    I don’t think it is going to work, and I define “work” as: debt growth resumes the correct rate to expand the economy despite increased interest payments, and house prices resume the correct growth rate to reach a 10 million median price by 2050 (maintaining “double in price every 7 to 10 years”).