The Australian Institute for Progress has analysed the two new home buyer schemes from Labor and the Coalition.
The Institute’s research indicates that the price effects of the two schemes would be minimal, but the ALP plan would increase the price marginally more. Australia’s housing market is worth $9.9 Trillion, and we estimate that the ALP plan would provide $1.75 billion additional buying power a year, versus the Coalition’s $1.2 billion.
However the ALP’s scheme will cost a maximum of $18,000 per annum per buyer and be funded by the taxpayer, while the Coalition’s will cost around $600 p.a. funded by the taxpayer, with a final CGT concession of $2,402.
Our modelling finds that the government’s scheme would leave the purchaser financially better-off and with more retirement assets than the ALP plan. However, the ALP plan would be significantly beneficial for those who could access it.
However, the ALP’s scheme is only available to 10,000 buyers a year whereas we estimate the take-up rate for the Coalition’s would be more in the region of 50,000 a year.
Most importantly, the ALP’s lavish benefits will be funded by the taxpayer and $10.375 billion will be added to government debt.
Virtually the entirety of the cost of the government scheme will be borne by the home buyer themselves because it is funded using their own money which is kept on trust for them by superannuation managers.
The government’s scheme is clever financial management which maximises the return to the future retiree by shuffling assets from a low earning investment – superannuation – into a high earning investment – your own home – at minimal cost to the government.
“It’s time we accepted superannuation is not an end in itself but a component of good retirement policy, of which home ownership has to be the cornerstone. The government’s policy puts the right emphasis on the right assets and provides a better retirement outcome than fattening super at the cost of a house deposit.”
Comparison between ALP and Coalition first home buyers schemes
Cost to government
Interest/foregone income on government provided deposit – up to 40% of $950,000 or $380,000 until property is sold. At 3.5% (approximate 10 yr Commonwealth Bond rate) this is $13,300 p.a. Added to this borrowings of $7.3 billion, to eventually be repaid from sale of the properties.
15% tax on any earnings on the deposit. Maximum deposit $50,000, assume earnings in super of 8% giving $4,000 a year, so forgone tax will be 1.2% or max $600 pa until property sold. They may also miss out on some capital gains tax, but this is difficult to quantify. Assume a 4% capital growth and all superannuation assets liquidated after 10 years, and this would amount to a further $2,402. So the cost to the government is around $8,402 maximum in total.
Effect on house prices
The ALP scheme seems predicated on $1.75 billion a year ($7.3 Billion over 4 years) so potentially adds that much to house prices.
The Coalition scheme more difficult to cost, but assuming half the number of annual new home buyers take advantage of this and it is for a sum of $24,000 (based on our calculation the likely average superannuation balance of a 30 year old would be about $60,000), then their scheme will add $1.2 billion a year to house prices. So the Coalition scheme would push up prices less.
Benefits to borrowers under schemes
Live in much larger home than could afford under Coalition scheme as government picks up 30% to 40% of capital cost. The ALP calculates a maximum benefit of $18,000 pa. This is paid for by the taxpayer as above.
Receive a much higher return on their own money than if it was kept in Super. Our analysis in “Superannuation and Housing: growing the cake and eating it too” found that on historical data, for the five years to September 2020 GDP grew at total of 14%, house prices also grew at total of 14%, but the return on funds invested for a home buyer with a 5% deposit was 15.57% p.a. over the same period. This compared to the return on superannuation reported by APRA of only 6.5% p.a.