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20 May 2022 - Hedge Clippings |20 May 2022



Hedge Clippings | Friday, 20 May 2022


Well, with one day to go, we're finally at the end of the road - or depending on one's perspective, one day from the start of a new one. Maybe that should be a fork in the road, depending on one's pronunciation of the word "fork". Come to think of it, with the recorded number of postal votes (for which counting doesn't start until Sunday) and the potential for a hung parliament, the outcome might not be known for a few days, or even weeks.

The polls are suggesting a high proportion of undecided voters, or maybe that should be a large number who aren't that happy with Scomo, but haven't been swayed or convinced by the slogans (most, as far as we can work out, devoid of solid policy to back them up) of those hoping to take his place. Slogans or otherwise, it does indicate there's a level of underlying dissatisfaction in general in the community.

One Scomo hater (and certainly not undecided) we spoke to this week complained he'd handled COVID badly (actually badly is a polite version of his rant) which of all the negative things he might reference, Scomo's handling of COVID, or the results, shouldn't be in question. This week the USA passed the sad milestone of 1 million COVID related deaths for a population of 332 million or one in every 332 Americans. Australia's COVID fatalities are now at 7,986, or 1 in 3,180 of our population. In round terms, we're 10 times less likely to have died from COVID than an American. While our number is 7,986 more than we'd like it to be, it hardly warrants the criticism that it's been badly handled.

Of all the slogans, promises, or policies that have been announced, the most detailed and well publicised has been the respective support from both major parties for first home buyers, which, from our understanding, were both well intentioned, but targeting a different demographic.

Albanese's "Help to Buy" policy was narrowly cast, both by virtue of the limit of 10,000 recipients each year, (so only 6.6% of the 150,000 first home buyers each year) and their annual income eligibility - $90,000 for singles, and $120,000 for couples, and only required a deposit of 2%. The government would fund up to 40% of the purchase price interest free, which would be capped depending on location.

On the other side, Scomo's "Super Home Buyer Scheme" offer was more widely cast, allowing first home buyers to withdraw up to 40% of their super (up to a maximum of $50,000) to help fund their first home, in reality in most cases making it assistance with raising the deposit.

Both schemes have their merits and deficiencies, or at least limitations, depending on one's financial position. A low income purchaser is unlikely to have sufficient super in the first case, and their issue is more likely to be being priced out of the housing market, which Albo's scheme, however limited, would resolve. For the wider audience, and possibly those on a higher income, an extra $50,000 towards the deposit, could make the difference, albeit it would likely be less than 10% of the purchase price of the property.

Critics of both schemes came out of the woodwork. Industry Super Australia (ISA) presumably more concerned about missing out on fees than their members being able to gain a foothold in the housing market, (and therefore set themselves up to own their own home outright on retirement) claimed it was financially risky for the new home buyer and would hurt all Australians with a super account.  Others said it would push the price of property up and therefore be self defeating.

ISA's concern seems somewhat self-serving, given that in both cases the funds "borrowed" have to be returned on the sale of the property, along with a proportion of the capital gain. Over the last 10 years, the average capital gain on city residential property has been 5.61% vs an average of 8% for super, so technically they're correct (except those results were to June 2021 and ignore the latest down-turn). Except that ignores the fact that most aspiring first home buyers would readily forgo 2% p.a. to not paying rent, and at least get a foot on the bottom rung of the (CGT free) property ladder.

It's unfortunate, politics being politics, that whoever wins the election can't offer both schemes, one targeted (correctly) at those unlikely to ever own their own property, and the other at those slightly more fortunate, but who still need assistance with their deposit in the over heated (but we suspect falling) property market.

Meanwhile, what neither side seemed to have focused on (or have chosen not to) is what happens when the first home buyer wants to "trade up" to their next home in say 10 years' time?  Under Albo's scheme (but less under Scomo's) 40% of their first home's sale price will go back from whence it came, meaning they'll either need to stay where they are forever, "trade down", or go back to the government of the day and ask for more. Therein lies an (Oliver) twist.

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