Nick Xenophon’s got a plan to help first-home buyers, but like every political solution, it promises to do nothing for first-home buyers and everything for pumping prices higher. There’s a reason why this is as much as we can expect from the political establishment…
I kinda like Nick Xenophon – the independent senator from South Australia. I think his heart is generally in the right place, and coming from outside the tweedledee / tweedledum political party system, he seems to make the most of the opportunity he has to run a moral line on most issues.
And I like his campaign against pokie machines. If we can thank Steve Jobs for i-phones, we can thank Satan for pokie machines. Psychologically designed to be highly addictive and by-pass critical thought, they’ve sucked the money and value out of many a poor bastard’s lif.
And when you remember that the majority of pokie-players tend to come from poorer backgrounds, they’re an institution that sucks money from the poor and funnels it to the rich.
If only their genius could be used for good and not evil…
Now Nick’s campaigning on housing affordability on behalf poor first home buyers. Again, I think his heart is in the right place. But the thinking seems a little fuzzy-headed to me.
His plan is to allow first home buyers to dip into their super to put together a deposit for their first home (after which they’ll have 15 years to pay it back).
It’s not a wholly original idea. There’s a similar scheme in Canada – called the ‘Home Buyers’ Plan’ where first home buyers can take up to $25,000 out of their super and put it towards a deposit.
And in terms of its impact on the market, it’s similar to the first home-buyer grants (FHOGs). At least the government (i.e ‘we’) aren’t picking up the bill for this measure, so at least it’s an improvement in that sense.
But I’d argue that the FHOGs didn’t do diddly-squat to help out first home buyers. If they did, you certainly can’t see it in the data. Home ownership rates among 25 to 34 year olds have fallen from over 60 per cent in 1981 to around 48 per cent in 2011.
And nor would you expect them to work. When the supply of something is fixed, Economics 101 tells us that if demand goes up, it all feeds directly into prices.
And that’s exactly what we’ve seen. The supply of housing is very slow to respond, and as I’ve written elsewhere, planning regulations and taxes have given us one of the most constipated housing markets in the world.
Rising prices reflect this shortage. If there’s an affordability crisis, the problem’s on the supply side.
And so what we saw with the FHOGs – and what we would see with Xenophon’s super-plan – is that the extra buying power unleashed on the market would just feed directly into prices.
And so the only people who benefit are existing home-owners.
And the scheme works like an inter-generational merry-go-round. Tax the middle-aged, give it to the young, who then give it to the baby-boomers.
But it makes for pretty PR politics. Everyone loves a policy that helps out the kids. Especially if it doesn’t cost you anything (and if it actually pumps up the value of your properties, all the better). There’s a good chance Xenophon’s plan could get up.
But as flawed as it is, it’s as much as we can expect from the political establishment on this issue. Because the truth of it is, they don’t want to touch this one with a barge pole.
Because another way to frame the ‘affordability’ issue is as an ‘over-valued housing’ issue. That is, if the kids can’t afford a house, it’s because the adults’ houses are worth too much.
The obvious solution is some kind of policy (a massive land release for example) that brings the value of everyone’s property down.
And how long do you reckon the PM who knocked 20 grand off the value of everyone’s home would last?
He’d barely make it to morning tea time.
Same story if you think about it from a home-ownership perspective. If you think ownership rates are too low, what you’re really saying is that home-investorship rates are too high.
Again, there’s a simple solution there. Tax investment properties at a higher rate. Opposition to that one might be a little less rabid. Perhaps the PM would make it through to afternoon tea.
Because the baby-boomers (which is where the central balance of political power in Australia lies) have a great chunk of their retirement futures tied up in investment properties, and in the embodied value of their homes.
As much as we might say we love our kids, there’s no mileage in attacking those retirement nest eggs. None.
And so half-hearted polices like this are the best that we can expect. And the government will continue it’s long-held and firm commitment to keeping property prices elevated.
It’s just another reason why property is such a good bet.
Speaking of affordability, is there a chance this is all just a storm in a tea cup?
According to RP Data, 17.3% of homes sold in Sydney last year were in the $200,000 to $400,000 bracket.
That’s almost one in five homes in our most expensive city, selling for a price that I think most people would say was affordable.
So is there really a shortage of affordable housing?