Scheme 6 years overdue

The Australian Institute for Progress welcomed the Coalition’s Super Home Buyer Scheme which closely follows a policy they developed 6 years ago.

“The greatest risk in old age is not that your superannuation balance isn’t high enough, but that you don’t own your own home,” Executive Director Graham Young said.

“So home should always come before superannuation.

“However, our modelling has shown that the return on housing for the homeowner who borrows from their super to get into a house is much better than for the person who continues to rent.”

Mr Young said that there were a number of reasons for the housing return being superior.

“Homeowners get a tax-free gain from the sale of their own home, which contrasts with super where capital gains are taxed.

“They also get a tax advantage in terms of the imputed income returns from owning their own home – this is the rental value of the house which accrues to the owner post tax rather than pre-tax, another tax benefit.

“And finally they are able to gear their investment in such a way that even an increase in the price of the property at the rate of inflation gives them a well-above average real return.

“If a purchaser has a 5% deposit of $25,000 on a $500,000 house, and the house goes up 5%, or $25,000, then they have made 100% on their investment.

“This is a safe investment for them because if they weren’t making interest repayments they would be paying rent at a similar level. So the risk of default on the investment is minimal, justifying the leverage as generations of Australians have found.”

Mr Young said that some modelling purported to show the scheme would increase the price of housing substantially. This has frequently been commissioned by the super industry and should be treated with caution.

“There will be some short-term upwards pressure on prices, but even if you assumed no supply-side response from the housing market this can’t be more than the additional deposit available.

“A really basic model suggests that the average 30-year-old would be unlikely to have more than $60,000 in super. The government’s scheme allows for 40% of that, or $24,000, to be used for a deposit. Ergo prices might rise on average by $24,000.

“In reality the housing market will respond and bring more stock on as a result of more prospective buyers, so the increase will be muted.”

Mr Young said that in the medium term the problem has to be solved using other tools, like removing red and green tape on property development, increasing interest rates away from “emergency levels”, reforming town planning restrictions, and reducing tax on new housing.

“Superannuation is only valuable as a component in retirement planning where the family home is the most important component. Super has to give way to housing in the interests of the beneficiaries, and anyway, it is their money.”