Aussies and NZers: Four seasons in one protest

[karaddin]

I feel like the economic angle of "using super to buy a home" is more complicated than I used to think. Yes loss of that compounding nest egg is going to hurt, but rent is just burning money (as a renter that's effectively paying as much as a mortgage just to rent and getting nothing extra out of it) and if you hit retirement age without owning a home you're fucked. I think it comes down to the super being better if you would have wound up buying anyway, but the home is better if you wouldn't.

But yeah, just throwing more money at it always results in inflating prices even more. It really needs mechanisms to lock investors out if you want first home owners to have a better chance.

[Wall Flower]

I feel like I'm going to need a couple of valium for Saturday night and a never ending packet of Tim Tams if the current government gets back in.

[The Anti-Targ]

The supply side of housing needs to be addressed so that the demand side does not create a never ending spiral of inflation. If you address supply, then accessing personal savings that would otherwise be locked away for 35-40 years would not have an inflationary effect.

Off housing. The NZ govt has announced a a big climate change package. I haven't read much, but it aspires to the net zero 2050 goal with measures that if implemented as envisaged might just get us close. $0.5Bn is going into a cash for clunkers scheme that is hoped will help lower income people to move from petrol to electric / hybrid vehicles. It'll be a little while yet before affordable used EVs (<$10,000) come on the market that aren't fairly old Nissan Leafs with an 80Km range, in the summer. Once <$10,000 EVs with a range of 200km come on the market (with a decent cash for clunkers credit to drop the price even further) then I think we could see reasonable adoption rates from lower income people.

More and better public transport is also a very necessary solution.

[karaddin]

I think you're underestimating just how much construction there has been in Sydney over the last 10 years while the problem continues to get worse. Supply needs to be obtainable for owner occupiers or it just gets bought by investors, the solution isn't that simple because the government has been putting it's hand on the scale for decades to keep an overinflated balloon from popping. And it continues to do so.

[The Anti-Targ]

That's all covered by the supply side being addressed. Addressing the supply side isn't limited to building more houses. If supply is being funnelled down a certain demand channel and not others because of govt policies then you are not using supply most effectively to ensure decent, affordable housing for all. 

[Skyrazer]

Prices are also heavily predicated on the purchasing power of buyers. Govts keep continuing to hand out incentives/tax breaks to buyers, giving them more purchasing power which contributes to driving up prices.

Yes supply is a major factor in the equation. But as Karaddin says, our issue is less about lack of supply and more bad govt policy driving up demand. If we didn't have all the incentives and tax breaks, you'd probably find our supposed lack of supply would not be nearly as bad as it seems.

[The Anti-Targ]

Yes and no, a FHB and a property investor play significantly different roles in property inflation. The FHB has  less influence on inflation regardless of access to funds.

[Jeor]

The first-home-buyer issue is a multifactorial equation that needs multi-faceted solutions. I've just read an SMH article that proposes creating FHB-only homes (in much the same way there are properties exclusively for over-55s). Some ideas might be:

1. Limit negative gearing, which is powering some of the investor buyers. It doesn't have to be cold turkey straight away, I'd say limit negative gearing to one extra property and that would start taking heat out of the market. Most people probably positively gear their properties. I suspect the negative gearing tax benefits accrue very much to the high income earners who are incentivised to negatively gear at their tax bracket and these are the ones who can take the hit.

2. Increase the supply of affordable housing. Maybe you do create FHB-only category of homes. Like the over-55s, developers could be incentivised to build these (which they would make less profit on compared to traditional homes) by having relaxed regulations, such as higher floor-to-land ratios, etc.

3. Give FHB some financial power to purchase. I wouldn't touch super. But you might have some government program that helps banks offer more attractive FHB loan products, or at reduced rates or LVRs. The government already offered plenty of discount facilities to banks during the pandemic, I'm sure they could tailor something to the FHB market.

The benefits of having (2) and (3) are that they don't really affect existing property owners in any significant way. A gun-shy government could still do (2) and (3) and back away from (1). If they don't want existing property owners to suffer falls in asset prices, but want to help FHBs, they need to artificially split the market.

[The Anti-Targ]

The problem with 3. if i am interpreting your preference about super correctly is if you lock FHBs out of their super it means taking on more debt, unless the bank of Mum and Dad is the alternative source of a decent deposit. Taking on a bigger debt isn't better than dipping into super.

Banks here make Mum and Dad affirm that the money is a gift and not a loan, which is almost always a white lie that Mum and dad have to tell because unless Mum and Dad actually have a spare couple hundred grand they don't know what to do with it's going to be money Mum and Dad want back, with a bit of a capital gain. So making it easier for Mum and Dad to loan their kids money without the bank denying or limiting the mortgage might help.

[Jeor]

1 hour ago, The Anti-Targ said:

The problem with 3. if i am interpreting your preference about super correctly is if you lock FHBs out of their super it means taking on more debt, unless the bank of Mum and Dad is the alternative source of a decent deposit. Taking on a bigger debt isn't better than dipping into super.

I am coming around a little bit to the idea of super - in the sense that dipping into it now for a lasting investment is not that much different than later on. And the fact that young people could do with accessing that money now rather than an impoverished houseless retirement. 

The thing I am worried about though is the precedent - that super might become a piggy bank for all sorts of things. Up until now, the governments of the day have been pretty good at ring-fencing that money. You can only access it before the preservation age if you have a severe hardship or incapacity. If we say you can access it for first home buyers - that takes one brick out of the wall, and before you know it, you might be tempted to raid super for routine medical bills, for children's education, etc. I know the slippery slope argument is not particularly convincing, but it probably does contribute to my slight leeriness of breaking open super for FHB.

My (3) suggestion was more about recognising the fact that young people probably won't have much super anyway, so a more material boost to spending power would be if they could access discounted interest rates or something similar, which would give them a bit more competitiveness against regular home buyers than an extra 20K in super. If you did both (2) and (3), you'd be both helping FHBers with their own cheaper FHB-only properties, and also helping FHBers who want to enter the general market with more competitive purchasing power.

[Skyrazer]

2 hours ago, Jeor said:

The first-home-buyer issue is a multifactorial equation that needs multi-faceted solutions. I've just read an SMH article that proposes creating FHB-only homes (in much the same way there are properties exclusively for over-55s). Some ideas might be:

Quartering off a segment of the market to cater to supplying FHBs with affordable housing would be a good solution. The fact that FHBs have to compete with much wealthier investors or established buyers means the deck is majorly stacked against them.

But it's ambitious and progressive and this country doesn't seem to have the appetite for drastic things like this. And as I mentioned before, this could potentially mean upsetting existing homeowners as it pulls FHBs out of the private market which would put downward pressure on prices and parties of all stripes are simply too afraid of rocking that cart.

[karaddin]

Yeah I think one of the fundamental problems with this discussion is we're all coming at it from the perspective of "how to help FHBs with the housing affordability problem", while I'm not convinced either of the major parties have any interest in addressing that problem at all. What they want is to do *something* which has the appearance of trying to help but which ensures the bubble doesn't pop. Labor went to the 2019 election actually intending to try and improve things and "don't do that again" was unfortunately one of the key lessons they learnt from it. The coalition sure as hell aren't interested in improving it.

That said at this point I have no idea what the Coalitions election pitch even is. "Vote for ScoMo because we need to #RescueJosh or people like ScoMo will ensure there are no moderates left in the LNP. But don't worry, bulldozer ScoMo can change and he's not as scary as Albo!"?

[The Anti-Targ]

I think a possibly good prospect that could be exclusive to FHBs is rent to own facilitated by the govt paying the deposit to the seller up front, interest free to the buyer, and then there is a split of the rent that the buyer pays for the 2/3 years that they are paying off the deposit, plus chipping away at the cost of the house to lower the mortgage amount they will finally have to take out. Once the govt has been paid back, the FHB gets the mortgage and pays out the seller. If you do that then there is no reason to dip into super because the FHB is, by paying rent, doing what in effect paying into super is: saving up for a deposit that is inaccessible for any other means. If the govt pays the deposit up front it means the seller can go and buy a house the normal way with the banks being required by govt regulation to recognise the rent to buy arrangement as an asset for the seller. If the seller has to get a higher mortage for a few years, then the interest differential for those years could be tax deductible.

FHBs buying new builds with rent to buy should be basically a mandatory offer, and non-discriminatory.

[Impmk2]

So on the FHB super thing - there is modelling out there for this. And it found that it will push up house prices - often by more than the amount of super FHBs are able to access. So not only does it further inflate the market and put it even more out of reach for many, but it also means the ones who can use it have reduced super to use for retirement.

It's a bandaid solution that doesn't solve any of the underlying issues.

https://mckellinstitute.org.au/research/reports/mortgaging-our-future/

[The Anti-Targ]

As they say, all models are wrong, but some are useful.

This is useful not for concluding that super for FHBs is bad, but that there needs to be other elements considered to keep the property inflation effect in check. Like, regardless of how much you save you can't access super until you've been paying into it for X number of years, and how much you can take out is capped at a fixed amount or a fixed % of what is in the super account.

 

[felice]

19 hours ago, Jeor said:

If they don't want existing property owners to suffer falls in asset prices

...then they shouldn't have let the asset prices go so high in the first place. House prices absolutely need to plummet. And the only solution is building more houses and apartments. Investors automatically cease to be a problem if the government is committed to keeping house prices low through guaranteed supply.

Most homeowners aren't really any worse off if prices fall; they have to live somewhere, and it doesn't matter if they don't get as much from selling their current house if the new one is also much cheaper than before.

[Jeor]

1 hour ago, felice said:

Most homeowners aren't really any worse off if prices fall; they have to live somewhere, and it doesn't matter if they don't get as much from selling their current house if the new one is also much cheaper than before.

Well, some will be worse off if they're carrying mortgages greater than the eventual value of their house. But they won't realise that loss until they sell, so you could argue that they're just locked into higher repayments than they needed to be.

I think the best chance for house prices is stagnation rather than a crash. A crash scares people and the government will try to prop things up. But if prices just stayed stagnant for a decade while supply kept up and investors got less interested in the market, that would be more politically tenable. They could grandfather in the abolition of negative gearing, really.

[felice]

35 minutes ago, Jeor said:

Well, some will be worse off if they're carrying mortgages greater than the eventual value of their house. But they won't realise that loss until they sell, so you could argue that they're just locked into higher repayments than they needed to be.

Require banks to transfer existing mortgages when moving houses, so the loss is only on paper. They're still better off than renters who pay similar amounts and end up with an eventual value of zero. Yes, they're locked into high repayments, but that's the case even if prices stay the same. Possibly interest rates go down if you don't have housing contributing to inflation, which would help.

35 minutes ago, Jeor said:

I think the best chance for house prices is stagnation rather than a crash. A crash scares people and the government will try to prop things up. But if prices just stayed stagnant for a decade while supply kept up and investors got less interested in the market, that would be more politically tenable.

Using https://www.rbnz.govt.nz/monetary-policy/inflation-calculator/:

Wages have gone up 37% in the past decade. That would be equivalent to house prices dropping by 27% due to stagnation. The cost of housing would need to drop by 62% to return to the equivalent of the price a decade ago. And they were already unaffordable a decade ago. Unless you're planning on massive wage inflation, waiting a decade for an inadequate remedy doesn't strike me as a good plan.

[karaddin]

The problem is that the entire economy is held hostage due to entanglement with property prices, so even if housing price crashes the ones that will get hurt the most are the ones already hurting. 

There are also entire generations now who have been told all their lives that scraping savings together and becoming land lords is the "right and proper" way to beat good functioning member of society and feel entitled to never ending growth on prices. And they have done what they were told to the point of buying investment properties before their own home. They are a very large voting block and it's their number 1 issue. They'll also be the other group that's fucked if housing prices crash, but all that properties will mostly be bought up by larger investors and we'll wind up with it concentrated in even fewer hands.

Which is why I'm convinced you need more than the impossible price crash to fix the problem, you need government discouraging investment properties.

[The Anti-Targ]

Budget day today. And on Home ownership I learned two things about existing provisions to help FHBs: In addition to being able to access some of your retirement fund a FHB can get a 95% mortgage (with some kind of govt guarantee, where others are required to have at least a 20% deposit, previously FHBs accessing this lower deposit requirement were capped on the value of home they were allowed to buy, that cap has now been entirely removed; there is also a first home grant, which is money the govt will give you to help buy a house if you have been paying into your super fund for at least 3 years, it starts at $3000 and maxes at $5000 for buying an existing house, it starts at $6000 and caps at $10,000 if you are building or buying a new build, this was also capped and the budget has now increased the cap but not removed it.

There is no change to what you can take out of your super fund. You have to be in it for at least 3 years before you can access it, you can remove as much as you want but you have to leave $1000 in your super fund. Over 3 years someone on the average wage will have probably built up maybe $15,000. So if someone is looking to build or buy a new build they will have access to maybe $18,000 after 3 years. Taking our a 95% mortgage that only gives them the ability to buy a $360,000 house. There are maybe a few towns in the middle of nowhere that you could find a $360,000 house, and those are the kinds of towns you really don't want to be saddles with a 95% mortgage because as investments it's a really bad. If the same person waits 5 years they will be able to afford a maybe a $650-$700K new build. That's getting into mid-range in some of the nicer small-medium towns. Or maybe a studio unit in Auckland or Wellington or a 1-2 bedroom unit one of the other cities. But you are pretty much limited to NZ towns if you want an actual house with some land for that sort of money. After 10 years you'd be able to theoretically get a 95% loan on a $1M house, which is about the median house price in our most expensive cities. 10 years into your working life, taking on a $950K mortgage is a pretty daunting task. Reality is, if you are on the NZ average income no bank is going to loan you $950K. These three planks to home ownership for FHBs make home ownership less inaccessible, but for a helluva lot of people home ownership remains far out of reach.