Super Idea... Or Missing the Point?

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The concept of dipping into our superannuation to fund the cost of housing is not a new concept.  It is however one that fails to recognise the root causes of why a young individual should have to reach into their super.  The ability to use your super to fund a house or apartment is the equivalent to putting a band aid over an artery and expecting the bleeding to stop.  Surely we are not so short sighted as to impact the future wealth of this nation and capacity to afford self funded retirement to appease an affordability issue.

The first question we have to ask is, why is this generation any different to any that has come before it?  Generation Y have been characterised by many traits, one of which is the desire to have something now.  In many respects they could be referred to as the “Impatient Generation”. So why does this generation find it more challenging than others to buy a house?

Many Generation Y’s still live at home, usually a precursor to the capacity to save large quantum’s of cash whilst sponging off typically comfortable baby boomer parents.  A large generality but you get the drift.  Society has become more liberal and Generation Y, with their partners, have taken advantage of this living at either sets of parents, sometimes both.  With affordability in most capital cities running at approximately four times annual earnings, this is not significantly different to many generations prior.  Sydney may well be the nation’s basket case in this respect, however if the Federal Government is looking at this problem as being Sydney-centric and applying it at the national level, then the country has bigger problems than you or I can imagine.

Whilst blaming Generation Y for their own problems has almost taken on sporting fervour, the reality is actually quite deeper and fundamentally part of the bigger problem

Australian Underemployment: Seasonally Adjusted

Since the early 1990’s, the nation’s young workers have found themselves in a position where they have been unable to work to capacity through economic constraints, not through lack of desire.  The above graph shows the disturbing trend which is making it very difficult for this particular demographic cohort to make a decent start.  This is despite some of the finest economic conditions that Australia has experienced.  So next time the finger is pointed at the Gen Y’er as being unable to save and wanting all of the latest gadgets, perhaps the above graph should come to top of mind.  Australia’s productivity is suffering at the hands of underutilisation as much as it is from red and green tape.

The second point that no one really seems to be grasping is that many areas where affordability is a problem, these same areas are suffering from a shortage of developable land.  There are exceptions to every rule, but typically, where land is constrained, developers have to pay significant sums of money to secure sites.  This has to be passed onto the public.  In addition to this, many councils have historically made development challenging with gold plating infrastructure expectations instead of creating functional outcomes that serve the public adequately.  Throw in delays and before you know it, affordability becomes a problem for the whole community, not just the first home buyer...that includes the developer as well.

In its submission to Government in May 2014, the UDIA Qld raised the issues surrounding taxes and infrastructure.  It very succinctly described the components for a house and land package in SEQ to reflect the following; (Redbank Plains/Springfield House and Land package 2010)

The institute continues to push for reform in this space which should go a long way to improving affordability; however it won’t solve the employment problem.

It has been a long time since the Federal Government has had an urban and regional housing strategy, leaving it up to the State Governments and also the Local Governments.  Perhaps instead of stealing the future to appease the present, the Federal Government should consider what the barriers to entry actually are. 

Average Loan Size for First Home Buyers & Non-First Home Buyers 1991 - 2014

The first home buyer is not being forced to borrow more than the general market, however if you don’t have equity in a house or apartment, much like those non first home buyers, then your choices are becoming limited.  With the average first home buyer loan size in the sub $300,000 bracket, realistically a house and land package needs to be $350,000 or thereabouts.  This becomes increasingly challenging when supply constraints push up prices all the way through the supply chain.  This starts with the price developers have to buy land, a problem that is further exacerbated by development boundaries, allowing vendors significant windfalls depending on whether they are one side of an arbitrary line or not.

Quite clearly we are against the idea of tapping into young people’s super to allow them to purchase a home.  The risk with this strategy is that self funding retirement is a goal that should not be diluted, particularly as the demographic profile of Australia is one of an ageing population and shrinking workforce.  What needs to be addressed are the reasons why certain demographic cohorts are finding it challenging to enter the housing market, two of which are undersupply and under employment.  Fix those two problems and not only will you find that the affordability problem diminishes, you will also find the steepness of the property cycles is significantly reduced as well thereby making housing bubbles far less likely.

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