News & Media

April 2017 Newsletter

SUPER FOR HOUSING: WOULD IT WORK

We’ve been covering the housing affordability issue for many years, but the latest debate is possibly one of the most heated that’s ever been experienced.

Apparently housing affordability is going to be the centrepiece of the federal budget, to be handed down on May 9, and it was a key discussion point at a pre-COAG meeting between the federal treasurer Scott Morrison and his state counterparts late last month. The aim is to work out how to boost supply of housing for buyers and also to make renting more affordable.

“We want to put downward pressure on the challenges facing Australians who are seeking to buy a home,” Mr Morrison told reporters ahead of the meeting.

Asked whether people could expect an easing of house prices in the next two to three years, Mr Morrison said: “The government’s housing affordability package will be delivered in May. So you’ll have the opportunity to critique it then.” 

One suggestion that has really polarised opinion is whether first home buyers should be able to access their superannuation.

The Real Estate Institute of Australia (REIA) believes that it shouldn’t be a controversial idea. 

“Too much attention has been focused on the accumulation of a nest egg through superannuation at the expense of other more practical considerations which not only improve the quality of life at an earlier age but result in a greater retirement ‘nest egg’,” Malcolm Gunning, President of the Real Estate Institute of Australia 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.

“It is nonsense to suggest that early access to superannuation for a home deposit would undermine retirement savings and create new risks. Access to superannuation for the purchase of a first home could help reverse the trend of falling home ownership and address the looming social problem of large numbers of long-term renters aged 45 years and over remaining in the rental sector and possibly requiring rental support in later years.”

Mr Gunning pointed to countries including Canada, New Zealand and Singapore, where the use of retirement savings for a first home purchase has already proven to be successful.

“It is ironic that superannuation funds that invested in residential investment property have provided the best returns for their members over the last 20 years yet don’t want to see individuals investing in their superannuation contributions in real estate,” he added. “What is the difference between investing in someone else’s home through your super funded and using your super contributions to invest in your own home?”.

The argument against

Conversely, former PM Paul Keating has slammed the suggestion of accessing superannuation.

In an opinion piece in The Sydney Morning Herald, Mr Keating said: “Only the most reckless and wilful government would abort the policy settings to put the system at risk.”

“The two key elements underpinning superannuation are preservation of contributions to age 55 and the compound earnings on those contributions,” he said.

“If the preservation rule is breached and savings, especially those of young people, are allowed to drain away, the loss of the accumulation and its compounding would rob them of a large block of savings at the end of their working lives.

“And to make matters worse, the proposed diversion of these savings into housing would simply push up the price of the current stock of properties. It would add to demand while doing nothing to supply.

“So were the government to proceed with this irresponsible idea, it would potentially destroy superannuation for those, in the main, under 40 years of age, while at the same time, driving up the cost of the housing they are seeking to purchase.”

Victoria leads the way

At a state level, the Victorian Treasurer Tim Pallas said the Coalition should do more to address housing affordability. Victoria has taken an aggressive approach, scrapping stamp duty for home purchases under $600,000, taxing vacant housing stock and introducing a shared ownership plan with the government so buyers don’t need as big a deposit. On the supply side, Victoria has boosted land releases, cut approval delays and rezoned land in key growth corridors to allow another 100,000 homes.

Meanwhile, Queensland is looking at unlocking some of its state land, and has urged the federal government to consider the use of Defence land for housing.

The other Labor states have previously urged the government to consider Capital Gains Tax and negative gearing in a bid to address housing affordability.

Federal Labor advocates restricting negative gearing for new investors to new homes only and the 50 per cent CGT exemption for investors to be cut to 25 per cent. The government, however, has said this is a tax increase plan, not a housing affordability plan.

And while changes to CGT are being considered, albeit despite still internal resistance, the government is not contemplating changes to negative gearing.

In the lead up to May 9 when the federal budget is handed down, there’s certain to be a lot more on the housing affordability debate. Watch this space!

CHINESE BUYERS PROP UP HOUSING MARKET: CREDIT SUISSE

New stats from Credit Suisse show that Chinese buyers are purchasing the equivalent of a quarter of all new homes in NSW and 16 per cent in Victoria. And the reason why? Because the homes are “cheap” compared with China.

In October 2016, foreign settlements in NSW were valued at $225 million, rising to more than $450 million in both November and December. In Victoria the value of December settlements was 50 per cent higher than in November.

According to Credit Suisse analyst Hasan Tevfik, the figures, extrapolated from taxes collected from foreign buyers, represents a structural boost that will keep the Australian housing market stronger for longer.

In the recent paper, Australian Investment Strategy: Shanghai? Shenzhen? Sydney!, Mr Tevfik said that despite the new taxes and Chinese government restrictions, buyers from China will support the Australian housing market and lessen the severity of a downturn.

 

HAPPY EASTER

On behalf of the Charles+Stuart team we wish you a very happy and safe Easter.

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