Super way to buy home

Australia wouldn’t be where it is, facing record debt, more expenses than income, and a ratings downgrade, if governments could learn to say “No” more often.

So it should have been refreshing last Friday when a parliamentary inquiry into home ownership actually refused to make a recommendation on the basis that they couldn’t do anything about the problem.

Except in this case a small “Yes” was the right answer.

On most points the committee was correct. It’s not so much that housing is unaffordable, as measured by repayments. In most parts of Australia house repayments are actually more affordable than 23 years ago. (In Brisbane this is by a factor of one-third).

And the increase in house prices is a rational response to lower interest rates, which, while they make houses more expensive than 23 years ago, contribute to repayments being  effectively lower.

The committee was also right to point to high rates of immigration stoking demand, combining with state and local government planning laws and taxes restricting land release, to supercharge the supply deficit.

They were also right to point to stamp duty as an inefficient state tax which would ideally be replaced by land tax.

But the one thing they didn’t talk about is the deposit gap.

Ownership rates for Australians aged 25-34 have fallen from 60% to 48%, because an affordable housing loan is only a theoretical concept when you can’t afford the deposit to buy a house in the first place.

But there is a solution, and it makes an appearance at 2.86 in the report, only to be then neglected – allow first home purchasers to borrow from their superannuation savings towards a deposit.

This is not a radical suggestion. It happens in Canada, for example, where one in eight of those aged 25-44 participate.

It makes a lot of sense, because homeownership is the basis of a bearable retirement, and this is recognised in the aged pension asset test which exempts the family home entirely.

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.

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.

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.

But they will be playing a 40 year game with their super, so fluctuations in property shouldn’t worry them, any more than fluctuations in the stock market.

Besides, if they don’t own a home by retirement, the first thing they should do with their super is to withdraw as much of a lump sum payment as they need to pay one off, or buy it.

After two and a half years of hearings and deliberations, the committee could have done much better.

With housing affordability increasingly a subject of conversation, and the federal government needing to establish a clear direction in the New Year, perhaps the federal treasurer could ask them to examine this one issue in more detail, and report by March.

Allowing access to superannuation would actually be a decrease in regulation, and its “Yes” would be a win for young Australians and a “No”” to busybody government.