Current Government Scheme for the Affordability of Housing with Super Funds Criticized

According to critics, the government did not go the distance to lower the skyrocketing prices of houses during Budget last May 10, Wednesday, and the revisions it made will cause terrible situations to get worse.

It has been a long time since the electorate is calling out to have the process of purchasing that first house easier and the Committee has made it known that some important steps have been made to enhance the affordability of housing.

Of highest importance among these is a strategy which allows Australians to put additional cash into their super funds – one which can be taken later so that members can give a certain amount on a home deposit.

It is a technique for Aussies to boost their savings and give out less tax.

Starting 1st of July, Australians can have additional savings to their superannuation through salary sacrifice which is $15,000 annually and $30,000 overall.

They could then retrieve that amount along with whatever related interest at a rate of lower than 15 percent for a home deposit.

Scott Morrison, the Treasurer, added in his speech in the Budget that when a person or a family had something above their heads each night that they find reliable, then life along with other challenges are going to be easier to handle.

According to critics, however, the $30,000 limit is not enough and doesn’t go near the minimum amount needed for a regular deposit on the house.

Some say that the government did not offer a solution and only add fuel to the flames. Economists are saying that the First Home Super Savers Strategy might be flooding the market with additional amounts of cash and cause the prices go up.

Esteemed economist Saul Eslake said to Lateline that it is not going to help lower real estate prices — raised the supply of housing.

He also stated that they have taken superannuation-for-housing for granted. Individuals will be granted with subsidies so they can have larger deposits and therefore be able to withdraw bigger mortgages than they are capable of otherwise.

He wished there won’t be a lot of people who will take up the offer because the more individuals do; the stronger the upward pressure is going to be on the prices of housing.

There is an evidence over the 50 years in history that whatever gives way to individuals to have more spending on property than they normally would — which is what this move is going to do if it succeeds — consequently ends up with a greater amount of costly houses, not belonging to a greater percentage of the people who own property.

Unfortunately, the government did not heed this lesson.

The government diverted their attention to other alternatives made to alleviate supply of property, like bringing down a few tax breaks on individuals who have more multiple properties, dividing into half the amount of new improvements which could be purchased by outside investors and providing an incentive to motivate Baby Boomers to reduce the size.

The government, however, did not want to do anything about the obvious negative gearing and incentives over tax gains on capital was blamed for isolating young generations away from the housing market.

According to Mr. Eslake, the changes mentioned in the Budget are not going to create a big change in terms of being more affordable.

He mentioned that the activities the government can perform if it wanted to, pertaining to the discount on tax based on gains in capital, they are not doing, on negative gearing they are not performing, other than not letting people have holidays subsidized by taxpayers to proceed and go to their properties which are negatively geared.

You can find more information on Superannuation and Tax here – Guide to Superannuation and Tax.

An expert on Tax Greg Travers decided that the scheme could not be considered as a “true fix.”

According to Mr. Travers, of William Buck Chartered Accountants, as the government thinks that it has brought a scalpel to the crisis on housing affordability, the truth is that it is more of a feather.

“Many of them have galloped all over the edges and were not able to deal with the bigger issues.”

On a statement by Mr. Travers, partners, at best, who use the strategy can keep an extra $12,000 within the next three years, that totals to around 1.5 percent of the average Melbourne and Sydney home price.

The affordability of property that supports First Home Buyers Australia advocates the strategy, mentioning that first home buyer who earn above $18,200 each year are going to be better off since they would be able to save a deposit much more quickly.

The co-founder of the organization, Taj Singh, however, was “very discouraged” that the government did not deal with negative gearing or tax on gains in capital.

He said that without some controls that are tighter on lending from investors or deductions in incentives of generous tax by investors, investors are going to continue purchasing the supply in housing and become a major player in the housing market.

The Australian Property Council was a lot more optimistic, declaring that the strategy is going to “aid hundreds of thousands of Australians to keep something as a deposit for the first property.”

“The Budget is a really good try in dealing with the problems of the affordability of housing in Australia,” based on a statement by chief executive Ken Morrison.

“Attention to the improvement of the supply of housing, keep the growth of rent low. The close of the gap in the deposit is also all tolerated. However, the moves that focus on foreigners are going to destroy the reputation of Australia and are not going to contribute anything to the affordability of housing.”

The argument here is that the strategy is not going to inflate the prices of houses.

The rule in general of connecting superannuation to property has become a cause of intense argument in Canberra for a long time.

Joe Hockey and Tony Abbott brought up the idea of letting Australians join their superannuation with little eagerness in the later parts of their ruling in the Liberal Party last 2015.

At the peak of conflicts with the prime minister then, minister of communications Malcolm Turnbull tagged the whole affair as a “really bad idea.”

“My opinion is that it is a huge issue on the supply-side and you will not be able to get housing to become less expensive by making demand higher,” says Mr. Turnbull.

“Obviously, this is not the way the superannuation system was built for.”

Minister of Finance Mathias Cormann, who was significant in the organization of the 2017-18 Budget, is, for the record making nonsense of the idea of having people use their superannuation to get housing.

“Getting an increase in the level of the money involved in real estate by helping access to superannuation savings before retirement is not going to improve the affordability of housing,” Mr. Cormann stated in news.com.au in 2014.

He said that the demand for the property would be increased and, with all other things being equal, is going to raise prices of property to a significant degree. This means that it is going to lessen the affordability of property, first home buyers included.

But, the strategy which was talked about back in 2014-15 was a lot more different to the scheme that was announced last night.

As the concept did not go past the bubble phase, the conversation was about a strategy very much alike Canada’s Home Buyers’ Plan, which lets citizens acquire existing superannuation funds reaching $25,000 in a single year and give it back in a matter of 15 years.

The strategy of Mr. Morrison is a lot simpler. It allows for required superannuation donations to remain out of reach and let’s amounts from raiding which would be advantageous to the Australians golden eggs for retirement.

Meanwhile, Labor holds their ground that super must not be utilized for the property.

The minister of finance shadow Jim Chalmers stated that in case you wish to contend yourself with the affordability of housing, you must begin with negative gearing and gains in capital.

Did you know that you can retire in style? Read our How to Retire in Style Guide for more information.

An In-depth Look at this New Super Scheme

FIRST home buyers are finally going to be capable of dipping into their super, so they could pay a deposit based on the federal government’s broad expanse of the package for the affordability of housing.

Those who rent or individuals who wait for subsidized property, as well as the ones without property, can acquire an increase in the 2017 Budget, at the same time as investors on property facing rules which are tougher about negative gearing and tax gains in capital and older Australians are motivated to decrease in size.

Based on the most awaited super strategy for first home buyers, superannuation balances in existence are going to stay out of reach.

Starting the 1st of July, savers can make extra salary sacrifice for their super account higher than the required contribution, for as large as $30,000 in sum and $15,000 in just one year.

It is then possible for them to acquire that amount from 1 July 2018 forward, together with whatever related income there are.

As we’ve already stated earlier in this post, a lot of first home savers are going to be able to make the speed faster for their savings for around 30 percent based on this scheme.

A few economists have in the past been critical of the practicality behind the scheme, saying that it could maybe just raise the demand and pressure the prices of houses.

Also called the “First Home Super Savers Scheme,” it is going to invite the benefits of super taxes, with donations and income taxed at 15 per cent, instead of residual fees, and taxes acquired at 30 percent lower than their residual rate.

Mr. Morrison said that savers need not prepare a different account; they could simply utilize their current superannuation account and make a decision as to the amount of the income that they wish to set aside and save during their initial home deposit.

To get an idea of how it is going to work, the government provides the example of “Michelle.”

Michelle has around $60,000 every year, and income sacrifices $10,000 of her before tax earnings for her super account, enhancing her balance by $8500 past donations tax. After three years, she could get $27,380 and additional earnings for those donations, giving tax of $1620, which leaves her with $25,760 on her deposit. That leads to around $6240 more compared to her saving in an account of standard deposit.

This strategy is anticipated to get a cost on the budget bottom line of around $250 million within four years, as the ATO or Australian Tax Office is going to be granted an extra $9.4 million for the application.

Some of the other moves on the affordability of housing affordability mentioned within the 2017 budget are mentioned below:

WHERE SUPER FITS IN THE NEW STRATEGY

Executives of the industry might also think about the idea of superannuation savings getting transferred to the assets market instead of being used to generate income during retirement time, specifically since a lot think of the 9.5 per cent superannuation guarantee too low. One must also consider the risk that within short durations of time, superannuation, which tends to be invested a lot in growth assets, like equities, could decline very steeply in value.

An allowance of up to $30,000 in voluntary super donations is granted to first-time home buyers, to place a deposit for an apartment or a house as a move to assist young people in gaining a foothold in the real estate market.

Veterans have, in the past, been reluctant at the prospect of letting young Australians harness their required donations to purchase an apartment or house.

The first-time home buyer superannuation strategy is not going to be as much as superannuation looking from the viewpoint of tax. Donations are going to be taxed at 15 percent. However, withdrawals are going to be taxed at 30 percentage points lower than a saver's residual rate of tax. Withdrawal amounts from superannuation could be made free of tax at 60, but superannuation savings could be made out of reach from 40 to 50 years.

They are then able to get at most $30,000 of donations, with additional earnings made from those savings, from 1 July 2018. Donations can be given from 1 July this year.

With a move that is anticipated to cost $250 million from the federal government within the next four years, first-time home buyers are going to be allowed to get any donations above the 9.5 per cent superannuation guarantee to purchase assets.

"The government is making moves that are going to assist additional individuals to reach their targets of owning a home," Treasurer Scott Morrison stated during his budget speech.

The measure is anticipated to cost $50 million the following year, rising to $60 million in 2018-19 and $70 million in each of the years 2019-20 and 2020-21.

There isn't going to be a need for members to report to their superannuation fund what the extra donations are going to be utilized for. In effect, retirement funds are required to make suppositions about the amount of time wherein additional donations are perhaps going to be invested in and make sure they have enough liquid assets to take care of withdrawals. Mr. Morrison stated that the government is going to provide $9.4 million to the ATO to exercise the move.

Superannuation guarantee donations cannot be used for housing. However, partners are going to be capable of accessing the strategy and mix their savings to produce one deposit.

Letting savers pump additional amounts towards superannuation at a very lucrative rate of tax is going to assist them in building a deposit much faster than the current rate. Frequent asset price growth in Australia's two biggest cities means that the amount of time needed to save for deposits has increased significantly.

Starting July, savers are going to be able to produce voluntary donations of up to $15,000 annually - and up to $30,000 overall - which could be taken later, along with the corresponding income, for a first-time home amount.

For the past ten years, in Sydney, the usual time taken has risen to eight years from six years, while in Melbourne, the usual time has increased to six years from four years.

A GOOD IDEA

According to critics, regulatory and supply concerns are the central factors in making housing less expensive.Source: News Corp Australia

Based on what critics say, the main factor to enhance the affordability of housing is to increase supply and get rid of regulations that are involved in infrastructure, planning and land use.

Minister of Finance Mathias Cormann says that the government did not back the concept.

“Making additions to the amount of money being transferred into real estate by aiding access to super savings before retirement is not going to better the affordability of housing,” Mr. Cormann says to news.com.au.

“The demand for housing is going to be increased and, with everything being equal, it would increase the prices of houses by a lot. Meaning, it is going to diminish the affordability of housing, taking into consideration first home buyers.

“An only effective manner of dealing with the affordability of housing is to increase the supply of housing, not raise the demand.”

The super industry is also reluctant about this, with the Association of Super Funds of Australia claiming that Australia’s required donation percentage was not simply high enough to make this rule possible.

“A lot of people do not possess an adequate slack in their savings for retirement to finance the purchase of a house and not seriously compromise their consequent income for retirement,” according to a spokesperson.

It is said that above 50 percent of participants for the Canadian strategy failed to give the payment to the withdrawn amount in full or, in a few cases, even portions.

“It has a very serious influence on their balance of the final pension during retirement,” according to the spokesperson.

HOW IT WORKS

Nick Xenophon, Independent Senator.Source: News Corp Australia

He welcomes reactions on the idea, Senator Xenophon said.

“I’m quite pleased for the concept to be under a blow torch as well as enough scrutiny since we are going to derive a better result,” he said.

“Closely monitoring it is a must. We could learn many things from the errors of the Canadian strategy."

“It doesn't mean that it's going to be all or nothing. My hunch is, we have to think differently about having more individuals into the ownership of homes.”

The strategy might succeed, says Senator Xenophon, if there were sufficient monitors and regulations in place, like:

• Making sure that gains of capital made on assets were given back to the superannuation fund of the homeowner
• Putting a time cap on as soon as the money acquired has to be given back
• “Carefully and gently” reeling in negative gearing policies for current assets
• Planning laws have to be reformed to keep state governments from “locking up land.”

“Superannuation is not a silver bullet (however) it is going to raise affordability,” according to Senator Xenophon.

“There have been many criticisms; I welcome that since we are discussing affordability of housing, which we have not done for a while.”

According to him voters were split regarding opinion

“The split seems to be in thirds: one-third is very much in favor, one-third is largely against, and another one-third doesn't want it to be exclusive for first homeowners,” he said.

“Individuals must have an open mind. Among the best kinds of superannuation in your retirement is to have ownership of your home and get it paid for.”

Tightening Of Negative Gearing Policies

It is said the negative gearing rules persist, but the policies are getting tightened around what you can claim, and are lessening in depreciation and costs of travel.

Based on the new policies which are taking effect starting July 1, lessening in depreciation for equipment and plant items like ceiling fans and washing machines will only be tolerated if the investor purchased them.

"Measures of integrity,” which are directed to solve issues that these items are getting acquired as write-offs on tax by consecutive investors also to their real value, is tipped to return to $260 million within four years time. These changes are going to be applied to whatever items are bought after budget night although current investments are going to be grandfathered.

At the same time, investors will no longer be able to lessen tax costs during travel “related to collecting rent, inspecting or maintaining or for a residential rental property for rent” starting the 1st of July.

The move is designed to “deal with issues that a lot of taxpayers have been getting travel reductions without properly distributing expenses, or have gotten travel expenses that were for private travel.” Management of property charges for third parties like property management agents is going to stay deductible by the tax. The government anticipates the revisions in travel to give an additional $540 million in profit during the next four years.

Crackdowns on Foreign Property Investors

Offshore investors are dealing with a tax crackdown based on the Budget package, as new improvements are going to be under a 50 percent limit on offshore investment guarantees to “check the chances for buyers from Australia to buy.”

Policies on tax of gains in the capital are being secured for offshore investors, who are no longer having the ability to touch the exemption for main residences. The new policy begins on the budget night but is going to be grandfathered for current properties up to 30 June 2019. More changes starting 1 July comprise of increasing the rate of withholding for the tax on gains in capital for offshore tax residents starting 10 percent up to 12.5 percent beginning, and deducting the threshold for withholding on the tax for gains in capital for residents categorized under offshore tax starting $2 million to $750,000. All in all, the revisions will put in an additional $581 million for the following four years.

At the same time, offshore investors categorized under real estate which is residential are going to be applied with a “shadow tax” should they abandon their properties not available or empty for rent for six months during the year.

A yearly fee is going to be equal to the offshore investment application charge which was given during the period of application and is going to work out to around $5000. The move is anticipated to amount to $20 million for revenue for the succeeding four years.

Reduction of Incentives for Boomers

By 1 July 2018, persons who are aged 65 and above are going to be able to create a tax deductible donation of up to $300,000 starting from the sale of their main residence into the super, granted that they have been residing there for ten years at least.

This move is directed at motivating empty nesters to reduce the size to release more assets.

The size reduction donation is going to be categorized apart from current donation limits, and both partners as a couple can utilize the moves from the same asset. The strategy is anticipated to have expenses from the government of around $30 million for missing revenue during the period of forwarding estimates.

Additional Housing Supply Unlocked

The government is placing a huge focus on “making additional homes” to relax affordability of housing concerns.

Measures of a broad range were declared in the Budget which includes working alongside territories and states to change zoning as well as planning laws, opening up extra Commonwealth territory for improvement, and building a $1 billion National Housing Infrastructure Facility to “solve infrastructure chokepoints which are holding up housing improvement in important zones that are undersupplied”.

An area of a new suburb, in Melbourne, which might comprise of 6000 homes are going to be unlocked 10km away from the CBD at old Defence land in Maribyrnong.

There are going to be “tens of thousands,” according to Mr. Morrison, of new homes fashioned in the western part of Sydney in line with the “Western Sydney city deal.”

Extending Rental Periods: Something to Work On

By not getting into a lot of details, the government mentions that it is “giving additional security for those who rent” in cooperation with the territory and state governments to “make standards out of usage of long-term leases” — that do seem like somewhat of a wait-and-see move.

Homelessness Funding Enhancement

According to the government, it is cooperating with the territory and state governments to “change” the Agreement for Homelessness as well as National Housing to improve federal ties with outcomes funding. As an addition to present funding and agreements on indexation, it is going to give an additional $375 million for three years starting 2018-19 to provide for frontline services.

An Affordable Housing Bank

For a move to enhance private investment in housing that is affordable, the government is going to provide incentives on tax and make something called a “bond aggregator” — which is in effect a government-backed bank — to give “less expensive and longer-term finance for the sector on community housing.”

A Good Idea?

According to critics, regulatory and supply concerns are the central factors in making housing less expensive.

Based on what critics say, the main factor to enhance the affordability of housing is to increase supply and get rid of regulations that are involved in infrastructure, planning and land use.

Minister of Finance Mathias Cormann says that the government did not back the concept.

“Making additions to the amount of money being transferred into real estate by aiding access to super savings before retirement is not going to better the affordability of housing,” Mr. Cormann says to news.com.au.

“The demand for housing is going to be increased and, with everything being equal, it would increase the prices of houses by a lot. Meaning, it is going to diminish the affordability of housing, taking into consideration first home buyers.

“An only effective manner of dealing with the affordability of housing is to increase the supply of housing, not raise the demand.”

The super industry is also reluctant about this, with the Association of Super Funds of Australia claiming that Australia’s required donation percentage was not simply high enough to make this rule possible.

“A lot of people do not possess an adequate slack in their savings for retirement to finance the purchase of a house and not seriously compromise their consequent income for retirement,” according to a spokesperson.

It is said that above 50 percent of participants for the Canadian strategy failed to give the payment to the withdrawn amount in full or, in a few cases, even portions.

“It has a very serious influence on their balance of the final pension during retirement,” according to the spokesperson.

How It Works

He welcomes reactions on the idea, Senator Xenophon said.

“I’m quite pleased for the concept to be under a blow torch as well as enough scrutiny since we are going to derive a better result,” he said.

“Closely monitoring it is a must. We could learn many things from the errors of the Canadian strategy."

“It doesn't mean that it's going to be all or nothing. My hunch is, we have to think differently about having more individuals into the ownership of homes.”

The strategy might succeed, says Senator Xenophon, if there were sufficient monitors and regulations in place, like:

• Making sure that gains of capital made on assets were given back to the superannuation fund of the homeowner
• Putting a time cap on as soon as the money is acquired has to be given back
• “Carefully and gently” reeling in negative gearing policies for current assets
• Planning laws have to be reformed to keep state governments from “locking up land.”

“Superannuation is not a silver bullet (however) it is going to raise affordability,” according to Senator Xenophon.

“There have been many criticisms; I welcome that since we are discussing affordability of housing, which we have not done for a while.”

According to him voters were split regarding opinion

“The split seems to be in thirds: one-third is very much in favor, one-third is largely against, and another one-third doesn't want it to be exclusive for first homeowners,” he said.

“Individuals must have an open mind. Among the best kinds of superannuation in your retirement is to have ownership of your home and get it paid for.”

Be Updated with the News on Superannuation

We encourage you to read the news about superannuation. Note that every new information that comes can have significant value as far as your superannuation money is concerned. Are you intimidated by the way superannuation has changed over the last few years?

Have a look at the other information found on our site so you can equip yourself with the knowledge you need to cope up with recent changes in superannuation. The essentials are laid out in an easy-to-learn way. For example, if you have lost super, you can take advantage of our How to Find Lost Super Guide.

We are certain you will find enough news and information on our site. If you have any inquiries about everything that’s been happening about Superannuation, you are free to contact us at - 1300 559 392. Our administrators will gladly answer your call.

FIND YOUR SUPER ACCOUNTS FREE of charge!

Have you changed your name, address or job in recent times?

If so, Now is the time to find those multiple funds & consolidate your super!

Australian Super Finder specialise in searching for lost, inactive and active superannuation accounts.

Complete the form to find your money.

Free Super Search
Date Of Birth
I had no idea where my lost super was or the names of the funds. I just new it was scattered everywhere and I should definitely have more than $3,000 in my super. Australian super Finder found all 7 of my funds and now my balance is almost $50,000. Thank you so much for getting my super back on track.

- Leonie, Thomastown VIC

© AUSTRALIAN SUPER FINDER 2014-2017. All rights reserved. Authorised Representative Number : 462591 | Under Libertas Financial Planning Pty Ltd | ABN 27 160 419 134 AFSL No. 429718.
All information on this website is of a general nature only. We have not taken into account your financial situation, needs or objectives. You need to make up your own mind and ascertain yourself if it is right for you. We recommend you read the product disclosure statement(s) and the financial services guide before making any financial decision.