Labor’s disdain for property and would-be property buyers has surprisingly showed up in its pre-election commitment to axe the First Home Super Saver Scheme (FHSS). This surprised me because I thought Labor would have liked to encourage first home buyers to get into the property market but I guess the party prefers young people to build up their super rather than be diversified into bricks and mortar.
And this possible anti-property stance comes with the good news coming from Fairfax’s AFR that “Sydney's auction clearance rate hit a nine-month high and Melbourne's also picked up on the weekend buoyed by hopes of an interest rate cut and relief that banks were unlikely to tighten lending further after the Hayne royal commission.”
Now get this clear, I’m not rooting for a return to booming property prices but I’d love to see price falls slow down this year and eventually form a base so that they go sideways, until wages rise and then some time down the track another price rising period shows up.
Falling house prices and rising incomes would help bring down the debt-to-household income ratio that has screamed higher during the five/six year boom for Sydney and Melbourne house prices, as the chart below shows:
Core Logic’s early data says Sydney cracked a 61% auction clearance rate at auctions, which says buyers are starting to look for bargains. In Melbourne, 54.2% of properties were sold.
It’s still early days but it looks like the market of buyers is starting to match up with sellers, so I hope someone in the Labor Party says to his or her colleagues that “we better be careful that we don’t turn this manageable price fall, as the RBA’s boss Phil Lowe talked about last week, into a full blown collapse!”
Phil has helped talking about a possible rate cut or rates on hold for a long time and the Royal Commission’s recommendations are not telling banks to play harder ball with borrowers. But there are threats to the property sector out there that Labor could make worse or better. These include:
• The election.
• When they plan to introduce their negative gearing changes.
• When they will introduce their halved capital gains tax discount.
• And will they take away the chance for first home buyers to use their super to get their home deposit together?
Under rules that have only applied since July 2017, you could only take super money out of your fund as of July last year. The money you take out has to be voluntary contributions, so you can’t touch the compulsory contributions from your boss. A person can only put in a maximum of $15,000 and the most you can pull out is $30,000.
I’ve always thought a couple could salary sacrifice for three or four years and maybe put about $60,000 together, which could be a help with a deposit.
All up it seemed like a good idea and as it is saved in a super fund, the tax is better than in a bank account, and a 30% tax offset looks helpful.
Superguide.com.au explains the tax implications neatly: “Release of your contributions and deemed earnings made under the FHSS, will be taxed at your marginal tax rate less a 30% tax offset. For example, if your marginal tax rate is 34.5% including the Medicare Levy, with the 30% tax offset, you will pay a tax rate of 4.5% on withdrawal.”
Given the good idea of this initiative, I can’t see why Labor isn’t keen on it.
A recent Fairfax story, which would have relied on a Labor briefing, told us that “between the start of the program on July 1 last year and the end of January this year, 2,374 people have made requests to access their super under the programme. That equates to fewer than 4% of all first home buyers to have been granted a home loan over the past seven months.
“They have sought the release of $28.4 million from the Tax Office, or $11,962 per person.”
But the slow take up is explainable in terms of savers needing a few years to build up voluntary contributions. And if they live in Sydney or Melbourne, they might need five or six years to get a deposit for the expensive places in those capital cities.
Treasurer-in-waiting, Chris Bowen, is saying he wants to return to a recommendation from David Murray’s Financial Services Inquiry (that reported to the government in 2014) and said government should legislate an objective for superannuation. The report recommended that superannuation's primary objective be set as to “provide income in retirement to substitute or supplement the age pension”.
So Chris wants young people to put super before owning a house, which is unfair on current generations because they lose 9.5% of their wages to super, when we older Aussies got to use our money to buy a home, as super was only for the lucky or public servants.
Chris slagged the FHSS saying: “It was always a fig leaf to cover up their failure to properly deal with housing affordability.”
Labor is also making it harder for young Aussies to buy investment properties via negative gearing, as a stepping stone to buying a place to live in. So the only way he can really help younger Australians get into a home is by helping drive down the price of property or by slowing up its rise.
Labor seems to have a set against property. They agitated to stop Aussies buying property inside their self-managed super funds and now few banks are in the space. And their negative gearing proposals and reduction in the capital gains tax discount tells investors in real estate that they don’t want to represent them.
Cynics are telling me that Labor’s close connection to the trade unions and their very successful industry super funds, which I always tell you are great and reasonably priced performers, means they don’t want Australians to take money out of super for property plays. Super funds lose good super customers/members and their money flows into the property sector, so there could be ulterior motives in Chris’s love and commitment to super.
Interestingly, in my no commission, flat dollar-charging financial planning business, if we have new clients in good industry super funds, we tell them to stay there. If they don’t have property and have lots of super and they want to buy property, then we would say diversification makes sense. Also owning a principal property is very tax-effective, so we’re not biased to either asset because we have our client’s interest at heart.
If Bill and his Labor party are dead keen to kill off the FHSS, then they better come up with a better plan to help young Australians into a home, other than driving down the price of properties.