In propertyland, it seems the default solution to housing (un)affordability has become to throw ever greater amounts of money at the problem, especially when it's someone else's money that gets spent.
It should come as no surprise that the loudest calls for more interest rate cuts and taxpayer-funded incentives — boosted first home grants, stamp duty cuts, etc — are coming from special interest groups like the agent-oriented real estate institutes.
These lobbying efforts, which are always framed in the language of ''improving'' affordability, have become more aggressive as Australia's property market has posted one of its weakest performances in years.
Never mind that a sustained decline in property prices probably represents the only way to measurably improve affordability after years of strong price growth in parts of the country.
Never mind that the falling interest rate, cut in a time of global economic uncertainty, doesn't mark a sustainable, long-term improvement in the financial position of would-be buyers.
Never mind that boosting the first home owners grant has a record for inflating prices (and debt) to unhealthy levels.
Never mind that home ownership rates haven't improved despite years of government incentive programs.
These efforts to pump up the market could be simply written off as the normal activities of groups looking out for the best interests of its membership. Fair enough.
But then there's the Real Estate Institute of Australia's growing push to give first home buyers access to their superannuation to fund otherwise unaffordable purchases.
The REIA put the idea to the Commonwealth Government in a budget submission in April, with the (original) suggestion that first home buyers be permitted to use their ''voluntary'' contributions.
By October, the group was advocating a new policy that would potentially allow full access to the funds in a super account, taking its inspiration from the ''success'' of a similar plan in Canada.
The REIA's proposal is worth quoting at length:
The Canadian Home Buyer's Plan has been in operation since 1992 and allows first home buyers to withdraw up to $25,000 from their retirement savings plan to purchase or build a home. The scheme has proven popular, with nearly 1.4 million Canadians withdrawing money from their retirement savings to participate in the plan between 1992 and 2004.
Under the plan, funds withdrawn from retirement savings need to be repaid over a 15 year period so as not to impact the ability to enjoy a comfortable retirement.
"The Canadian Home Buyer's Plan is the perfect example of this proposal in action and REIA would like to see it implemented in Australia as a solution to overcome the problems faced by first home buyers," concluded [REIA acting president Pamela] Bennett.
In the REIA's telling, the plan is simple, efficient and effective.
In reality, the operation of the HBP is a lot more complicated and its ''success'' is not nearly as clear-cut.
While many Canadians have used the HBP when buying their first home - and it does seem to bring some benefits - questions remain about what inflationary impact the program has had on property prices and the long-term consequences for the value of their retirement plans.
The REIA claims that ''the Canadian scheme does not disadvantage the retirement plans of first home buyers''.
However, research conducted by Statistics Canada during the early years of the HBP show some of the pitfalls that can arise if buyers over-extend themselves when pulling money out of their retirement savings without being able to put it back in.
And it's not a small number of HBP users who have run into trouble, right from the get-go.
The 1998 survey found that one-third of participants failed to make any repayments or make the full repayment amount required in the program's first years of operation (repayments must begin two years after the withdrawal). The highest default rates were for participants on the lowest incomes.
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As a penalty for failing to repay, the amount due that was due that year is charged as taxable income.Then there are the potential financial losses to the earnings of an individual's retirement or super account.
In the REIA's scenario, a 34-year-old with a super fund account of $28,999 could conceivably withdraw all but $3999 of their funds as a deposit on a home purchase. Assuming they never miss a payment, it will take up to 15 years to return their super balance to where it should be - but all the potential earnings on that money will have been missed.
Maybe that's not such a bad thing considering how volatile the share market has been recently — where a lot of super is invested — and how strong the property market has been over the last decade or so in many parts of the country.
But there's the catch. The REIA's proposal takes for granted that growth is a certainty.
What happens if property prices don't rise at a rate that outstrips the growth that is theoretically ''lost'' when removing the money from the super account?
What happens if prices flat-line or fall for the better part of a decade?
What happens if interest rate or cost-of-living rises put a squeeze on your income and you can't make a scheduled super repayment, thereby getting slugged with a higher tax bill?
What happens if the plan only further inflates housing values, worsening affordability and effectively erasing the current value and compromising the future value of the retirement savings that were used?
One Australian economist has suggested to me that an HBP-style program was unlikely to be as inflationary as a government cash grant because people would tend to be more cautious spending their own money, even if it's money they won't technically need until retirement.
Maybe so, but maybe not.
The Canadian scheme is worth watching, but it's effects are far from proven and fully understood.
There's no doubt that housing affordability is and will continue to be a serious problem for Australian first home buyers. But is gambling with the still-meagre retirement accounts of first home buyers really the best way to reign in the problem?
Source mh.domain.com.au
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