Does anyone else find the government’s continual scapegoating of ageing, equity laden investors who are allegedly keeping their kids locked out of the housing market, even as that same government encourages further buying activity, somewhat ironic?
What about Treasurer Scott Morrison’s recent suggestion that elderly homeowners should selflessly downsize their digs, freeing up an estimated 50,000 more properties to maintain a semblance of sanity around house prices? I’m not sure how that figure is arrived at, but we’ll go with it for now…
Budget bluster
The elderly property downsize push was just one of the actions Morrison hinted at within the upcoming federal budget, with incentives planned to encourage retirees out of housing too big or impractical for their needs.
There’s also been talk about resurrecting the ‘early release of superannuation’ scheme, which would allow young, would be first homebuyers to unlock a potential deposit on their own home from their super fund.
If you recall, this similar conversation occurred fairly immediately after the GFC when the government was trying to come up with ways to stimulate residential real estate activity.
So what about the elephant in the room then? The old negative gearing nugget that most housing, finance and social commentators will concur has a lot to do with the influx of highly leveraged investors we’re currently seeing in our housing markets.
Well, Morrison’s comment on talkback radio summed up the government’s stance on amending negative gearing legislation…
“I mean Labor is just saying get rid of negative gearing and all your problems are solved. That’s just ridiculous.
“Last time Paul Keating did that, rents in Sydney went through the roof. Now I don’t see how increasing your rent helps housing affordability, particularly if you’re renting.”
Not to mention all those votes you’d lose. And no doubt votes are what the Liberal party hopes to collect with plans to address our young people’s property woes.
But what about the government’s proposals? Won’t inviting more participants onto the playing field, in the form of first time buyers wielding deposits fluffed up by their super funds, simply create even more activity and demand in a market obviously suffering an accommodation shortage in key localities?
Making waves
The bottom line for any government in power right now…and the same bottom line they’ve been facing since that fateful financial crisis in 2008, is that without property performing well, we face a plethora of financial falters and fumbles moving forward.
First and foremost is the fate of all those fortunes tied up in property portfolios and of course, a banking sector that’s fairly exposed to changing tides. Hence, anything that threatens the current level of activity isn’t really ideal.
And the thing is, do we need to be talking about increasing activity right now, or do we need serious measures in place to look at the housing shortage issues we’re facing?
Estimates suggest that some 20,000 homes are sitting uninhabited in Melbourne alone due to foreign buyers looking for a place to park their cash, but not really wanting the headaches of a long distance rental relationship.
Earlier this month the Victorian government moved to reduce those numbers, introducing a 1 per cent tax applied to foreign owners who “land bank” local properties.
Many have accused the federal government of not only ignoring the surge in foreign investment of late, but also actively provoking it, even though Morrison has boasted that his party has “forced the divestment of more than $100 million in residential property sales that were illegally acquired by foreign investors.”
Meanwhile, Assistant Minister for Cities, Angus Taylor has said that Sydney is building half as many new houses as required to keep up with current levels of demand.
“If Sydney had been growing its housing stock as fast as it should have, to keep up with population growth in Australia, we should have built about 35,000 homes a year for the last 15 years. We have actually built 17,000.”
New South Wales Planning Minister Anthony Roberts says the state government has a strategy in place to address this imbalance, with ‘inclusionary zoning ‘ measures that would see a certain amount of new home construction set aside at affordable prices for people on low to moderate incomes. The scheme has already been widely adopted across the US and in London.
Are these the more pertinent conversations for our politicians to have, as opposed to ideas like unlocking super funds and injecting further money into an already overheated sector?
Fuel to the fire
Many financial commentators seem to think early withdrawal of superannuation to unlock the property door to first time buyers is not the best idea right now. Some suggest it’s downright silly to even contemplate such policy reform for numerous reasons.
Firstly, young people would essentially lose out on a large chunk of their future wealth, as less money in their super fund means less of that compounding magic to build their nest egg for retirement. This could, in turn, see even greater investment activity in property as yet another generation becomes disillusioned with structured super funds.
And as we saw when incentives were thrown around like lollipops to get young people into property immediately after the GFC, it’s likely house prices will continue to increase. Because you haven’t addressed that fly in the ointment – the shortage issue.
Encouraging people to leap into the property markets at what’s arguably the very extended peak of an ongoing boom in key areas isn’t really the greatest move to grow wealth.
And finally, the biggest mammoth in the building when it comes to the super proposal put forward by the government, would have to be that most young people simply wouldn’t have sufficient funds to make for a decent deposit anyway.
Research released by super industry group AFSA showed that the average super fund balance for an Australian aged 20 to 24 years was $5,118 in late 2015. Those aged 25 to 29 were in a slightly more lucrative, yet just as useless super fund situation, with $16,441 to their name.
Not really going to cover that 10 to 20 per cent deposit on a property in Sydney is it?
No doubt the government needs to be seen as doing something to address housing affordability, even if it cannot really empathise with the plight of the common people, facing the current conundrum…
Here’s hoping they go about it with a plausible solution in mind. One can dream…
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).