Campaigning in Perth on Monday, the opposition leader insisted Labor’s shared equity scheme would work to help lower- and middle-income earners enter the market in the same successful way a similar policy had been working in Western Australia for 30 years.
Actually, that comparison is not quite accurate. Only about 10 per cent of WA’s Keystart customers rely on shared equity.
The great majority of borrowers appreciate the modest 2 per cent deposit required from a government-backed but independent financial institution. They are still encouraged to shift to normal bank loans after several years of increasing their own equity.
Shared equity versus your own
But Labor’s scheme proudly relies on the principle of direct government involvement to assist an ever-increasing number of lower- and middle-income earners effectively locked out of the market due to the size of the deposit and repayments required on massive mortgages.
Morrison wants to contrast this with the Coalition’s stated preference for having government now step back in favour of putting people “in charge of their own money”. That is despite having a continued level of deficit spending demonstrating just the opposite, of course.
The prime minister is still happy to mock the complications of Labor’s means-tested proposal for up to 10,000 first home buyers a year as well as the notion of government taking a share of the capital gains when the home is sold.
“You don’t have to sell it if you get a pay rise – or someone wants to go back to work full-time,” he argued at his campaign launch.
“There are no complex rules about income thresholds or who gets what. When you do an improvement, you don’t have to check with the government every time you go to Bunnings to buy a can of paint.”
The government’s scheme is instead open to all first home buyers and requires the return of up to 40 per cent or $50,000 taken from super, along with any proportionate increase in capital gain, whenever the home is sold.
That doesn’t stop Labor and superannuation funds being outraged at what they believe is another assault on super from a Coalition that initially disliked its compulsory nature and now resents the increasing economic power of industry funds.
Labor also leapt on a comment from Superannuation Minister Jane Hume acknowledging it could mean a short-term “bump” in prices as people brought forward purchases. Gulp.
Morrison rushed to argue the rest of the Coalition’s policy – making it more financially appealing for an older generation to downsize – would actually free up supply to counter any such possibility.
Both policies will increase house prices
Yet to the extent any price rise might result, the same criticism should presumably apply to Labor’s own policy, given this too is more focused on helping demand grow rather than addressing still inadequate supply.
Despite regular dips or flat-lining in home prices over the decades, for example, the long-term trend in Australia has been one of relentless rise.
That translates into a semi-permanent “affordability crisis” in an Australian housing market dominated by accelerating prices.
There are many reasons, including the lack of new supply matching a fast-growing population compounded by the level of state and local zoning restrictions and the national preference for living in a few major cities or along the coast.
No one has ever had much of an answer for this dilemma – other than a plethora of state and federal funding schemes to jump-start people into the market. (Certainly no one dares mention curbs on negative gearing.)
Morrison proudly cites an existing Coalition scheme that helped increase the number of first home buyers last year from 100,000 to 160,000 by making 5 per cent deposits more feasible.
But right now, both federal parties conveniently ignore the reality that coming increases in interest rates are actually making more people nervous about the potential for a big fall in house prices.
That would only be more painful for all those who have bought relatively recently, partly based on Reserve Bank assurances the cash rate would remain negligible until 2024.
Add in all those small business owners who have traditionally used their homes as security for business loans. And the dilution of the “wealth effect” for existing home owners who are encouraged to spend more by having their net wealth increase.
It means the Australian economy – and inevitably the housing market – are entering a new, even more volatile cycle, particularly for a generation that has only known years of very low inflation and falling interest rates.
None of that competes with a Coalition desperate to gain momentum and an opposition desperate to maintain its lead in the final days. A promise to help first home buyers is a perfect fit for both.