Morrison’s housing analysis supports use of super for home deposit

Executive Director of the AIP, Graham Young, said Federal Treasurer Scott Morrison’s housing analysis yesterday was mostly right, but would not fix the affordability crisis in the short to medium term.

“Morrison’s solution is to decrease real house prices over time, so is to be preferred to the ALP’s proposal to abolish negative gearing, which would crash them immediately, but it ignores the implications of his own analysis.

Mr Young said that Mr Morrison’s analysis found that:

  • Mortgage repayments are affordable (sitting below the ten year average) Graph
  • House prices are based on fundamentals of supply and demand (particularly demand caused by immigration) Graph
  • Loans to investors have been moderating, decreasing any propensity to freeze home buyers out of the market. Graph
  • The size of a deposit has increased by approximately from approx 60% to 100% as a proportion of annual household disposable income since June 1990. Graph
  • The decline in home ownership is most strongly seen in first home buyers with loans to that group down by a third from the long term average.

“So the only thing that is really out of whack is the size of a deposit, and this is totally ignored in the policy prescriptions he advances.”

Mr Young said that increasing supply will decrease prices over time, but decreasing house prices by 40% so deposits would be at the levels of the 90s would be catastrophic for the economy, and unlikely to happen.

“Measures which decrease approval times and slash red tape and unnecessary bureaucracy are good for the industry and the economy, but it is fanciful to think they will lead to a price decline anytime soon.

“The industry is based on current valuations, and it would take a recession, or a steep decline in population growth, forcing bankruptcies and forced sales, to significantly alter current price levels.

“So if Mr Morrison wants to increase home ownership then he needs to address the deposit gap.”

Mr Young said the AIP had identified a number of ways of doing this.

“Top of our list would be to allow first home buyers access to their superannuation savings to top-up other savings towards a deposit.

“As Mr Morrison says ‘The Productivity Commission noted in 2015 that the most frequent use of superannuation lump sums was to fund housing, including paying down mortgages and renovations’.

“It makes more sense to let them use some of the pool to buy a house earlier in life so they have both home and super when they retire.”

Possible Deposit Gap Solutions identified in AIP paper “Housing Affordability – the Deposit Gap

  1. A first home buyer deposit gap scheme funded by the government
  2. Giving first home buyers access to their superannuation funds for the purposes of buying their first home
  3. Encouraging financiers to offer deposit bridging finance
  4. Encouraging parents or other relatives to co-invest with first home buyers