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The Prime Minister is betting the house on new incentives

Michael Yardney and Dr Andrew Wilson discuss the Prime Ministers new Super Home Loan Scheme.

Video transcript

MICHAEL YARDNEY: With more and more Australians now believing the great Australian dream of home ownership is out of reach and with the Federal Election coming up in less than a week, both major political parties have now addressed the affordability challenge experienced by first home owners. Each party is approaching the problem in a different way, but if either scheme gets implemented, there could be significant consequences for property values in the short term.

Prime Minister Scott Morrison also announced a scheme to encourage older voters to rightsize their homes and put more money into their superannuation. I'm looking forward to hearing the thoughts of Australia's leading housing economist Doctor Andrew Wilson, Chief Economist of my housing market on these proposals, in this week's "Property Insider" video for Yahoo Finance Hi, Andrew.

DR. ANDREW WILSON: Good day, Michael. It must be an election campaign.

MICHAEL YARDNEY: Oh, I hadn't noticed.

DR. ANDREW WILSON: It's a bit like Groundhog Day, isn't it? Here we go again, but it's certainly been a big couple of days for the housing market in terms of the election campaign.

MICHAEL YARDNEY: Yes, this week, the Prime Minister Scott Morrison's now, I guess, betting the house on the super play. He's promising that if re-elected, first home buyers are going to be able to contribute up to 40% of their superannuation, up to a maximum of $50,000 in a super home buying scheme.

DR. ANDREW WILSON: Yes, Mike, firstly, there's a number of other similar advanced economies that actually use this scheme, and so it's nothing new. And it's nothing terribly radical. I think, really, when we examine the scheme, it's only going to be very marginal in terms of the numbers that'll have the capacity to take it up and those that sort of bemoan the fact that we're reducing the capacity for superannuation savings to provide incomes after retirement. I mean, the policy specifically stipulates that on the sale of that first house, you have to return what you've gained as a deposit from the superannuation fund plus any capital gains. You've got to put that back into your super funds.

MICHAEL YARDNEY: Relatively few first time buyers have got enough money in their super, Andrew, to make this work because you can only borrow 40% of your super. The Australian Bureau of Statistics suggested the median super contribution so far for 25 to 34-year-olds is around $25,000. So it's not going to make a big difference, is it?

DR. ANDREW WILSON: No, and I think those that have those higher superannuation balances, because they have higher incomes, have been in the workforce longer, would probably be more likely to actually be already owning their own homes anyway. The reality is, Michael, we've just come through a period where we've had near record numbers of first home buyers in the market. That's been as a result, of course, of that first home buyer deposit scheme, and now, that's been extended.

And I think that will have an impact on the market, but both parties are on board with that policy. There's now 50,000 places per year with that 5% deposit guarantee, but certainly, first home buyers have been at high numbers despite high prices over the last 18 months, fallen away recently, of course, as those policies have expired. I think the Labor Party proposal, again, any first home buyer who can get into the market is a positive, but that is more problematic because it's a shared equity scheme.

It's, I guess, you could call it a quasi social housing construct, and issues such as who has the, you have to, sort of, if you want to do renovations, you have to be able to get permission to do those sort of things. But at the end of the day, we want to be able to provide all those who want to become home owners with the opportunity to do that regardless of whatever scheme. We must look upon it as a positive.

MICHAEL YARDNEY: So either way, I believe that's, they're going to push up property values. You can imagine after an auction somebody's going to say, hey, I can't believe it. We just got 50,000 more than we were thinking. Boy, a first home buyer bought my property because it's not just for new homes. In both cases, both parties are suggesting these schemes are going to be available for established properties, as well. I can see that there is a reasonable argument that because compulsory superannuation is now taking, probably, 10% of a young person's wage, it's a lot harder for them to get in the home market than baby boomers.

In our day, there wasn't compulsory super. It was only brought in 1992, and at that stage, it was only 3% of the wage, but it's got to be remembered that it's always been hard to get into the home market if you're wanting to buy in the sort of location that it took your parents 30 years to be able to get their home, Andrew.

DR. ANDREW WILSON: Yeah, that's right, Mike, and we must remember that before we had the first home buyer schemes and a deregulation of the banking sector, you used to have to have a 40% deposit to purchase a home. And that was typically through one of the government-owned banks, the Commonwealth Bank, which was government-owned, of course, and was there to really supply finance for housing and any of the state government banks.

You had to have a savings account, which was a very low interest savings account. You had to have a significant long term savings record to become eligible. You had to have 40% deposit, and you're still, to a large degree, your success was the whim of the local bank manager, so that meant you had to have all your friends and relatives banking in that particular branch. Now, we certainly have a lot easier access. Although, as you said, it's always difficult.

MICHAEL YARDNEY: Well, another policy that Scott Morrison proposed was a rightsizing policy for Australians. Now, he's brought the age down to 55. They'd be able to downsize their home and contribute up to $300,000 of the profit of the sale of their home into their superannuation. And this is just an extension of the scheme that he brought in a little while ago when the age was 65, Andrew.

DR. ANDREW WILSON: Yes, Michael, I think, again, it's a good incentive to be able to improve your superannuation balance as you are getting closer to retirement. Obviously, that's a big incentive, but I think the real issue here, Michael, isn't the giving more incentives for downsizing. It's actually giving them somewhere where they can downsize, too, and of course, we keep attacking housing market issues on the demand side, Michael, creating more demand and then ignoring the supply side, which of course, at the end of the day, only means higher prices.

MICHAEL YARDNEY: Clearly, baby boomers are now wanting to downsize close to where they live, as you said. The futurists a while ago suggested we were going to see change or tree change, will go to retirement villages, but that doesn't seem to be the case. People want to stay in the same community, go to the same dentist, the same hairdresser, be around their friends. The lack of family-friendly good-sized apartments that's going to create an issue. They don't want to squeeze into a small box.

Well, I look forward to catching up next week when we're going to know the result of the election. Well, hopefully we will. They might have a hung election, but we'll see what's going on. And we'll have lots more to talk about.

DR. ANDREW WILSON: Well, I'm excited, Michael. I don't know about you, but no, have a little tongue in cheek there. But yes, it'll be an interesting week ahead.

MICHAEL YARDNEY: Look forward to chatting next week.

DR. ANDREW WILSON: Thanks, Michael.

MICHAEL YARDNEY: Bye.

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