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Super way to buy home

By Graham Young - posted Wednesday, 28 December 2016


There was a minority report that was happy to say “Yes”, but its recommendations, including abolition of the “negative gearing” benefits, would make no contribution to housing affordability.

Abolishing negative gearing would increase taxation on housing (although not by as much as was claimed last election because most proposals still allow carry forward of tax losses), but no one claims it would make houses cheaper. And if it doesn’t make them cheaper it doesn’t contribute to affordability.

There are some financial risks in allowing people to put some of their super into a house, but the risks are manageable, certainly over the course of a lifetime of work.

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The market is looking pretty peaky at the moment.

Despite the best efforts of the Reserve Bank, it’s likely we face a time of interest rate increases. It’s a dirty little secret but the RBA doesn’t actually control rates, and this was demonstrated when the banks didn’t follow them down on their last cut, and a number have just recently raised them.

Australians owe $1 trillion to overseas lenders, and these determine what our banks can charge.

The US economy is starting to hit capacity constraints and Trump’s expansionary program is anticipated to hit them harder, forcing rates up, along with the USD.

That’s a double whammy. Investors will demand a much higher return to compensate for the risks of currency depreciation, on the back of everything else.

Higher rates will moderate price rises, or kick them into reverse, but may also increase payments by about as much.

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And then there is Campbell Newman’s gift to housing affordability, the increase in density of near city-unit sites, creating a looming glut.

Already the unit avalanche is putting downwards pressure on rents, and where rents go, asset prices generally follow.

So it might be smart for first home buyers to save another year or two and then buy the dip.

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A slightly edited version of this article was published by the Courier Mail.



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About the Author

Graham Young is chief editor and the publisher of On Line Opinion. He is executive director of the Australian Institute for Progress, an Australian think tank based in Brisbane, and the publisher of On Line Opinion.

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