Thursday, May 19, 2022

Why the PM’s first homebuyers plan gets a big tick

I am normally the last person to disagree with Terry McCrann but I am surprised by his judgment below.  He does recognize that the government proposal will put more buyers into the property market and hence increase prices -- but seems to discount the importance of that.  

His judgment seems to be that the effect on prices will be small.  I suppose it depends on how many take up Morrison's offer.  So some modelling of the effect would be interesting.

My fear is that the price effect might nullify the increased ability to spend.  If the superannunt frees up $20,000 to spend and the price of a desired property goes up by $20,000 we surely have an exercise in futility.  And a price rise of $20,000 would not be a big move

The Government’s proposal to let first homebuyers use some of their super to buy their first house makes unequivocal good sense.

The major criticism is that it’s taken so long. Many people in their 30s and 40s, who are still renting, would be entitled to be a tad pissed.

Why is it now only happening when that first house is probably going to cost me a million, at least in Melbourne and Sydney?

Why wasn’t it around when I could have got my first house for, say, $500k? And then spent the last ten or more years building a tax-free capital gain – and by the bye shared in the Reserve Bank mandated free money for home loans for a few years – instead of all that rent money?

It is important to understand two big points.

First, the Morrison scheme has the same roots as the Albanese proposal for the government to fund up to 40 per cent of that first home buy.

Head-to-head, Morrison’s proposal is, in my view, superior. But I would also argue there is clearly both room for and a need for both. Let the buyer choose.

Albanese’s proposal has a homebuyer going ‘partners’ with the government to buy the property.

In contrast Morrison’s has the homebuyer going ‘partners’ with their own super fund; and in a more limited way.

Albanese’s would have the government providing up to 40 per cent of the total home cost; and so also would get up to 40 per cent of the – of any – capital gain.

Morrison’s would indirectly limit the super fund’s effective equity in the home to a much smaller percentage; and so both the super fund’s exposure to the property, to the ‘risk’ of profit or loss.

But critically, there’s no real ‘leakage’ to a third party. The super fund’s likely gain still is also the homebuyer’s.

The second big point is to accept that, yes, the whole issue of doing ‘something’ to boost the ability of first-home buyers is a vexed issue; there are genuine pluses and minuses.

This was rather neatly captured in a series of successive emails that popped into my inbox in reaction to the prime minister’s announcement.

“Allowing super for home deposits would ignite a new housing price explosion.”

“Super for housing inflationary and contrary to retirement income objective.”

“Access to super a step up for home ownership.”

Yes, all of them have elements of truth; in particular, any scheme which boosts the number of buyers and the amounts they can pay, other things being equal, will add upward pressure to property prices.

But to make that determinative - that there should therefore be no or only very marginal schemes – is really an argument to deny first home buyers both the ability and the right to buy their first home.

To deny them that, critically, in the context where there’s active concerted and persistent action by policy-makers to enrich those already owning property.

It’s not only a social imperative to help people buy their first home; it’s also a critically important finance one and really about fundamental financial equity.

Further, the bit of the third email headline I left out – from the Master Builders I might note – asserts, correctly, the over-arching justification for the Morrison proposal: it “maintains (the) Integrity of (the) super system.”

This is not a proposal to let people take money out of their super to go on a holiday, or fund a business or some other frolic.  It is very directly an investment by the super fund, just like any other investment.

And one that critically enables the single most important investment a person can ever make, given the way owner-occupied home ownership is so significantly and widely tax-enhanced


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