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Peter Hannam
After the RBA lifted its cash rate target at the start of May (smack in the middle of the election campaign) we’ve seen some pullback in the property market.
Preliminary stats from CoreLogic (which typically get revised lower as more data lands) indicate the auction clearance rate has fallen for a fourth week in a row.
Now part of the story is there were more properties on the market as the Easter/Anzac Day disruptions subsided. The 2847 homes under the hammer were up 38% on the previous week – but down 2% from a year earlier.
On the 2228 results collected, the prelim figures suggest 64.6% of homes were sold, down from 77% a year ago. (After revisions, the previous week clearance ended at 61.8%, so perhaps this past week may sink below 60% when things settle.
Sydney (and Canberra) did better than a week early in relation to the clearance rate, but there was a big caveat. More than one-fifth – 22.1%, in fact – of the city’s auctions were withdrawn from the market – not the sign of a bullish market.
“This time last year 78.9% of the 1,150 auctions held across Sydney returned a successful result,” Corelogic notes. This past week, there were 934 auctions in the Harbour City, with 61.1% sold, according to the preliminary numbers.
And it’s worth keeping in mind that we are really at the start of a series of RBA rate rises (short of a cataclysm nobody really wants…)
For those wondering, the Jason Falinski-led committee which looked at home ownership solutions recommended superannuation be used – but as collateral:
The Committee recommends that the Australian Government allow first home buyers to use their superannuation assets as security for home loans.
The Committee recommends that the Australian Government develop and implement policy allowing first home buyers to use their superannuation balance as collateral for a home, without using the funds themselves as a deposit, thereby expanding the opportunity for home buyers.
Implementation of this policy should depend on also implementing policies to increase the supply of housing (such as Recommendation 2). Otherwise, an increase in households’ ability to borrow would likely increase property prices. This recommendation will therefore remove the largest barrier for home buyers; being the deposit.
Saul Eslake continues:
I think yesterday, when I first heard this policy echoing something Kevin Rudd said during the 2007 election campaign, that this reckless inflation of house prices must stop, but 40 years of following the housing market tells me that, however desirable it would be to stop it, politicians aren’t going to stop it because there aren’t any votes for them on that in doing it. I wish that politicians, and others, would look at the evidence, which as I say, I … think is incontrovertible.
Even Senator Hume conceded the policy would cause a bump in property prices, which would disadvantage those who aren’t able to arrange their affairs in order to take up this scheme, perhaps because they don’t have enough superannuation savings stocked away in order do this.
Mathias Cormann said in 2014, when this idea was last floated by Liberal backbenchers, that it would not work and would make the problem worse. Malcolm Turnbull said the same thing in 2016. The overwhelming majority of all of those who don’t have a vested interest in ever-escalating property prices is that schemes like this are counterproductive.
For the record, Eslake says he owns one house (Hume made the assumption he owned more than one on ABC TV this morning).
Contender for one of worst housing policies of the last 30 years, says Saul Eslake
Economist Saul Eslake is not holding back in his criticism of the Coalition’s superannuation housing policy.
He tells the ABC:
Well, it’s not as bad as the reduction in capital gains tax on investment properties that the Howard government implemented in 1999.
It’s probably not as bad at Howard government’s decision to extend first-homeowner grants to purchasers of established housing after the introduction of the GST, even though the GST didn’t apply to purchases of established housing.
But it’s a contender, apart from those two, for one of the worst housing policy decisions of the last 30 or so years.
We have, as you alluded to in your introduction just then, almost 60 years of evidence that, in my view, shows unequivocally and veritably that anything which allows Australians to spend more on housing than they otherwise would, be it first homeowner grants introduced in 1964, stamp duty concessions by state governments, tax preferences for property investors that were expanded under the Howard government, shared equity schemes, mortgage deposit guarantee schemes, for this one – anything that allows Australians to spend more on housing than they otherwise would – results primarily in more expensive housing rather than in more people owning that housing – that is, in higher homeownership rates.
And I’ve often asked myself, ‘Why do politicians of both political persuasions, not just Coalition ones, continue to do things that disadvantage the people they say they’re trying to help?’ Namely, aspiring first-homebuyers.
And the only plausible answer I can come up with is that, for all the crocodile tears they share about the difficulties faced by aspiring young first-homebuyers in getting their first foot on the property market ladder, they know that in any given year there are only 100,000 who succeed in that pursuit.
And maybe if there are four or five who fail to achieve that goal for every one who does, there’s maybe 400,000 or 500,000 votes for policies that would restrain the rate of property price inflation. But politicians also know that, at any given point in time, there are at least 11 million people who own at least one property. Within that, there are more than 2 million who own more than one property.
… The point is that politicians know there are far more votes in policies that push up house prices than there are to be had in policies that restrain the rate of growth of property prices. And John Howard was a pretty astute reader of the mood of the electorate – that’s why he won four elections in a row and became Australia’s second-longest-serving prime minister. He would occasionally say that no one ever came up to him on his walks, saying, “Please, Mr prime minister, would you do something that makes my house cheaper so that someone else can buy it more readily?”
The reality is politicians of both political persuasions know that there really aren’t many votes in doing things that would help first-homebuyers generally, whereas there are lots of votes in pursuing policies that would make existing property owners richer than they already are.
Here is Scott Morrison on 2 May criticising Labor’s shared equity scheme, which is open to just 10,000 people:
And so you’ll be going along to an auction and there’ll be someone who’s bidding against you. And they’ll be bidding with the government, and you’ll be bidding on your own. And so I don’t think Labor have thought these things through.
That same day, Morrison also questioned whether rising interest rates would cause mortgage stress for hundreds of thousands of people:
Journalist: Hundreds of thousands of Australians may go into mortgage stress if the RBA increases rates tomorrow. If that happens, would you take personal responsibility for the financial pain that they may feel?
Prime minister: Well explain to me your numbers. You said hundreds of thousands of people will go into mortgage stress when cash rates are at 0.1%. So what are these reports?
Journalist: There are reports in the papers today that if mortgage rates go up, then a little bit, then the pressure’s on because they’re maxed out on their mortgages. Will you take responsibility if rates go up?
Prime minister: Well, when I became prime minister, the cash rate was 1.5%. The cash rate today is 0.1%. When we came to government the cash rate was 2.5%. I mean, mortgage rates now and we’re talking about the average discounted rate is about 3.6, but many people will be on a lot lower mortgages. We’ve got people have moved from 20% fixed rates to 40% fixed rates. And you know what that tells me? Australians know what’s going on. They know there are pressures that are coming from outside of Australia on interest rates. I mean, 0.1 has been an historically, unconventionally low rate and it’s been there since November of 2020. So these rates are very low and Australians know that there is pressure on these rates and they know that over time how we manage the economy, how we manage the government’s finances, will impact potentially on what happens to rates and they could go higher than they might otherwise go. That’s why economic management and financial management in government is going to play a key role in just how much more people are going to pay. And so the bank will decide. The Reserve Bank, the independent Reserve Bank should rightly decide where cash rates are set. They are at historic lows at the moment, at 0.1%. But what I do commend the Australian people for, they’ve been making the choices to move to fixed rates, they’ve been making the choices over the course of the pandemic to ensure that they’ve been where they can, get ahead of that mortgage and to be paying down and ensure that they’ve been building up buffers.
I mean, you can also see on household balance sheets hundreds of billions of dollars on household balance sheets as Australians have been insulating themselves over the course of the pandemic to deal with these shocks that they knew would be coming. And so my commendation to the Australian people is they’ve been following the same prudent financial management that the government has, and that has built up protections and that’s what we’ve been doing.
Could you imagine how much harder it would be to pay a mortgage if we hadn’t had jobkeeper and 700,000 people were out of a job or we didn’t do the cash flow boost, which would have seen small businesses collapsing all around the country or the support we’re providing to first homeowners to get in and own their home in the first place. I mean, we’ve been taking steps to strengthen the resilience of our economy and the resilience of household family balance sheets and small business balance sheets so they can deal with and weather the challenges that we’re going to face.
The final time he was asked about modelling, Scott Morrison said he didn’t agree with the “assertion” it would have an impact:
Labor’s shadow treasurer Jim Chalmers has responded to the Coalition’s housing policy:
I think people are on to Scott Morrison. You know, all the spin and all the marketing from Scott Morrison, then all of a sudden, six days out from the election, people see this for what it is. It’s a desperate last-minute act of political and economic vandalism, more about where Scott Morrison lives and not where they live.
Peter Hannam
CoreLogic, a property data company, has just released their take on the Coalition’s twin-pronged housing policy unveiled by PM Scott Morrison on Sunday at the campaign launch.
To summarise: CoreLogic says the ability to access superannuation for first-homebuyers will boost demand for houses and raise prices (as superannuation minister Senator Jane Hume conceded this morning – see earlier post, and Paul Karp’s piece here.) It will also increase inequality.
And as for the “downsizing” component of the plan, which Morrison touted this morning as part of the “balanced” housing policy because it will increase supply, CoreLogic is dismissive, noting that the existing scheme has not had a big impact.
In more detail, the data group says:
Allowing first homebuyers to access superannuation for their upfront housing costs on a broad basis will add to demand, and this could increase the cost of housing. This may be good news for homeowners looking to protect their wealth, or sellers in an environment where housing market conditions are starting to soften, but for first homebuyers it could erode some of the benefit of dipping into their super.
Overall,
It is a very challenging time to be incentivising more housing demand in the face of supply-side constraints. Housing construction costs have risen significantly, adding to the cost and timeline of new builds.
But on equity, CoreLogic makes this important point that actually very few young would-be buyers would have much super to tap into in the first place.
According to ABS data, the median superannuation balance in Australia was around $55,000 at June 2020. First homebuyers are typically younger, and the median super balance was just $25,000 for those aged between 25 and 34 years of age.
In other words, with the cap at 40%, the scheme would offer just $10,000 at the median level, or the equivalent of some state-based first homeowner grants. “CoreLogic data shows the current median dwelling value in Australia is $748,635, meaning the scheme could help increase the size of a standard deposit by around 1%.” Not so large.
Unlike the first home loan deposit scheme, or Labor’s proposed shared equity scheme, there are no income caps associated with the [Coalition’s] super homebuyer scheme, making it far more advantageous for young first homebuyers on higher incomes.
And as for the supply component, the data crunchers imply downsizing will not do much to increase the amount of homes on the market – which Morrison has stressed is a key part of the equation.
CoreLogic notes those over 65 years of age can already make a once-off contribution of up to $300,000 (per person if a couple sells), with the government previously proposing to cut this threshold to 60 by July. This will now be open for those 55 and over, if the government is re-elected.
CoreLogic says some 1.3 million households would be eligible for the scheme, but note that the existing scheme (for those over 65) came into effect in 2018 but hard triggered many takers.
[Only] around 22,000 had utilised it between July 2018 and May 2021,” the firm notes.
It seems that downsizing is a nice idea, but unless other deterrents – such as stamp duty hits – plus the fact that people quite like living in their existing home, suggest the greying hoards (this correspondent included) probably aren’t going to leap at the one.
Josh Butler
Anthony Albanese’s Labor campaign is in Perth today, and he’s been on the city’s Triple M radio. He says he’ll be campaigning in the Liberal-held seats of Pearce, Hasluck and Swan today – and will be joined by Western Australian premier Mark McGowan.
Swan and Pearce are held by retiring Liberal MPs and are therefore major Labor targets, but Hasluck is held by veteran minister Ken Wyatt and seen as a longer shot.
Albanese wasn’t asked about the Coalition’s superannuation for housing plan, which his Labor MPs have been blasting this morning.
Instead he said he’d be making a health announcement for WA hospital infrastructure, which was aimed at reducing wait time for surgery. The campaign is heading to a local hospital today.
Albanese told Triple M the campaign was “nearing the end of the 4th quarter – it’s nearly “time on’.”
I’ll be satisfied I’m leaving nothing in the tank.
Continuing the series of sports metaphors, he claimed the Coalition was “trying to play defence” because “they haven’t got any new players”.
We’re fresh, we’ve got some new players on the bench,” he said.
Albanese will hold his daily press conference in around an hour from now.
The press conference ends.
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