When mainstream media outlets are voicing the public’s disillusionment with the way our politicians govern, and indeed those ripples of discontent spread far and wide across the entire world right now, you know there’s something big in the ether.
In recent times, it seems all sides of the political equation have an every man, woman and child for him or herself mentality to policy making, with foresight limited to ‘ways we might win the next election’.
This means we end up in situations that make little sense from the sidelines…hence, the disillusionment.
You’re doing what now?
Nowhere is this illogical, dichotomous approach to (allegedly) addressing the electorate’s concerns more glaringly obvious than in the world of property and finance.
On the one hand, you have Treasurer Scott Morrison laying the groundwork for a broad-based housing affordability package in next month’s federal budget.
Sounds good right? Finally, they’re going to do something about the fact that the Great Australian Dream is dying a slow and painful death, unlocking the door to home ownership for first timers in particular.
Morrison has eluded to a package that incorporates a number of elements, including access to Superannuation monies for a deposit if you’re a first home buyer, tax breaks for downsizing retirees, rental support, and measures to improve supply by freeing up federally owned land for housing development.
“One budget will not turn these issues around in isolation, but we can make a start,” said Morrison addressing an audience at the Australian Housing and Urban Research Institute.
“There are no single or easy solutions and the payback is achieved in some cases over a generation – not an electoral or budget cycle.”
Oh my! Does that sound like some productive long-term thinking? Well, no, not really. Because when you drill down into the main elements proposed in the package, a series of concerning contradictions become painfully apparent.
Is it really a super idea?
Detractors of the government’s plans to address housing accessibility for younger Australians, suggest that opening up Superannuation funds for early access is a flawed strategy to address affordability issues.
Firstly, isn’t it likely that luring more young buyers into already over-heated housing markets will simply aid to further stimulate those markets? Thereby exacerbating price inflation pressures…
And just how much money does the Treasurer think the average young person has in their Super Fund anyway? I mean if you want to buy an apartment in Sydney these days, you’d better have at least $50,000 to top up that hefty bank loan.
And how much more short term can you get, when you start talking about young people plundering what’s often the only retirement fund they’ll ever access, in order to buy a home? What about that essential compounding that’s going to be greatly diminished with a lower super balance?
The nuts and bolts of the ‘delve into your super scheme’ seem vague. Essentially, you’d be required to match the money you’re diverting from your super fund into a special home savings account, dollar for dollar, with caps on the amount of money you can access and timeframes.
LF Economics founder Lindsay David said the proposal would only add further fuel to the affordability fire.
“We must have the only government financial leaders in the world that think getting more young Australians taking on a loan they can’t afford in the first place is a good thing,” he said. “That’s just stupid.”
Not all in the industry are as cynical though. President of the Real Estate Institute of Australia (REIA) Malcolm Gunning said, “Superannuation and home ownership are both components of a retiree’s ‘nest egg’ and not competing products.
“By buying earlier in life retirees have every prospect of having a higher equity on retirement and a larger ‘nest egg’ on downsizing.”
The overseas elephant in the room
Of course the fly in the ointment when it comes to the coalition’s attempt to appear genuinely concerned for future generations trying to crack the housing market, is the continuing debate around foreign investment in our property markets.
When you openly acknowledge that supply issues are at the root of the housing affordability issue, and then happily watch Chinese investors buy up large swathes of inner city residential housing that often sits vacant for extended periods, it makes you appear a little less authentic.
The government has suggested a possible stamp duty be applied to all foreign investment purchases. But is it a bit too little too late?
The fact is a massive amount of Chinese money is already rolling around in our real estate markets.
According to Credit Suisse analysts Hasan Tevfik and Peter Liu, tax data implies that foreigners were purchasing property at an annualised rate of $4.9 billion in NSW and $3.1 billion in Victoria.
“Foreign demand for housing in NSW is currently running at an annualised rate of $4.9 billion and is the equivalent of 25 per cent new supply,” they wrote in a recent report published on Business Insider.
“We think this is extraordinary given that current supply is nearing peak cycle. In Victoria foreign buyers are hoovering up 16 per cent of new supply.
“When we talk about foreign buyers we are really talking about Chinese buyers. The Chinese have accounted for almost 80 per cent of foreign demand in NSW. The second biggest group, the Indonesians, account for just 1.7 per cent of foreign demand.”
It’s all well and good to argue that these foreign buyers are stimulating housing construction, thereby providing a much needed boost to the new property pipeline.
But in reality, most of the new housing stock they’re accessing is very niche and often, not in the realms of fiscal reality for the average Aussie first homebuyer. So where are the opportunities for them?
And let’s not entirely forget about that low interest rate environment encouraging more local investors to dabble in real estate as well.
Finally, what of the contentious roadblocks to new housing development that always seem to impede the possibility of increasing supply? Gunning suggests one of the major issues with housing affordability is that up to 30 per cent of the cost incurred is in taxes.
He adds that young would-be buyers are being pushed further away from the inner cities where employment opportunities abound.
“So you’ve got social expectations, you’ve got supply chain problems – speed to market, from zoning change to shovel-ready, is sometimes years – and taxes.”
In other words, nothing that hasn’t been completely overlooked by Morrison’s proposed budget package to address affordability issues.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).