A property expert has slammed Scott Morrison’s $500million plan for taxpayers to help first-home buyers get a mortgage.
Labor has promised to match the Prime Minister’s election campaign promise for the government to offer loan guarantees, enabling property first-timers to buy real estate with deposits of just five per cent instead of the usual 20 per cent.
Digital Finance Analytics founder Martin North said the policy would backfire by driving up house prices initially before causing home values to collapse as first-home buyers struggled to keep up with repayments.
‘It’s a nutty policy,’ he told Daily Mail Australia on Monday.
‘It will create more damage down the track.
‘I’m really worried about first-home buyers who basically get attracted by these initiatives.
‘The problem with all of these first-home buyer type incentives is it just lifts the water in the harbour and it has a tendency to lift prices – that’s true whether it’s a state initiative or whether it is at a federal level.’
Once prices collapsed, first-home buyers would be caught in a negative equity situation, where they owed more than their property was worth, leaving taxpayers with a hefty bill.
‘Negative equity is a tyranny: once you’re in negative equity, it can take years and years to get out of it again,’ Mr North said.
‘What you’re basically saying is, “I’ll bribe you to come into the market, buy a property but if prices slide at all, then you effectively lose all the equity you’ve got”.
‘The taxpayer then bears the risk.’
Since peaking in 2017, Sydney’s median house price has plunged by a record 16 per cent, despite interest rates being at a record low of 1.5 per cent, CoreLogic data showed.
Despite those falls, homes with a backyard typically cost $880,369 in Sydney, which is more than 10 times an average full-time salary of $83,500.
Mr Morrison wasn’t sure if his plan to help young Australians buy their first home more easily would increase house prices, but he was adamant it wouldn’t cause real estate values to plunge.
‘It’s difficult to say, it’s difficult to say,’ he said at a housing estate at Caddens, near Penrith in western Sydney, when asked whether the plan could lead to price rises.
‘But I do know this: Labor’s housing tax will force the value of your home down.
‘We want to see more first home buyers in the market, absolutely, and we don’t want to see people’s house prices go down.’
The government, if re-elected, would give the National Housing Finance and Investment Corporation $500 million to deliver the scheme, along with $25 million to set it up and research the housing market.
The Prime Minister, a former researcher with the Property Council of Australia, said the plan would allow singles earning less than $125,000 a year and couples earning less than $200,000 a year to get into the housing market for the first time.
About 10,000 people are expected to benefit, which would have been about one in 11 new home-buyers in 2018.
Under the plan, the Commonwealth would make up the difference between five per cent of the purchase price and the full 20 per cent deposit.
Campaigning in the marginal Labor seat of Lindsay, Mr Morrison defended the first-home buyer scheme, aimed at low and middle income earners, which the Opposition is vowing to copy despite the fact no economic modelling was done about its effects.
‘The scheme will ultimately be determined by the number of loans approved by the lenders and the arrangements with the National Housing Finance and Investment Corporation,’ the Prime Minister said.
Labor committed to matching the scheme, hours after Mr Morrison announced it on Sunday at the Liberal Party’s campaign launch in Melbourne.
It is one point of bipartisanship on housing policy, as the Coalition campaigns against Labor’s plan to scrap negative gearing tax breaks for existing properties from January 2020.
Mr Morrison pointed out that Labor also wanted to stop first home buyers from withdrawing their voluntary superannuation contributions to save up for a home loan deposit.
‘It’s fine for Bill Shorten to try and mimic us, but what he can’t mimic is our ability to implement policy, design policy and do it in a way that doesn’t increase taxes,’ said in a live Facebook video.
There were about 110,000 new home-buyers in Australia in 2018, the highest level in nine years, a fact that Mr Morrison has talked up in recent weeks.
He insisted it was the right time for extra support because it was never easy to scrape together a 20 per cent deposit.
‘It is a big mountain to climb,’ he said.
Housing industry bodies the Property Council and Master Builders have backed the scheme.
The plan is based on another program already operating in New Zealand, where Mr Morrison worked previously as a tourism bureaucrat.
But across the Tasman, first home-buyers must save a deposit of 10 per cent, rather than five per cent, before they are eligible to have their loan underwritten by Housing New Zealand.
In Australia, Mr Morrison’s scheme would allow struggling singles, couples and families to break into the property market, even if they could only stump up a quarter of the deposit typically needed for a house.
‘This will make a big difference,’ Mr Morrison told the party faithful on Sunday.
‘Cutting the time taken to save for a deposit by at least half or more.’
Shadow treasurer Chris Bowen said Labor would match the commitment.
‘After six years of failure, and six days before an election, the Liberals are desperately trying to tell young Australians they understand their struggles to buy their first home,’ Mr Bowen said in a statement.
He said first home buyers knew the Liberals were out of touch and were only for the top end of town.
‘We back genuine support for first home buyers – that’s why we are also reforming negative gearing for future purchases, so young Australians don’t have to keep losing out to wealthy property speculators,’ he said.
The Property Council said the deposit plan was a ‘smart proposal’ and will provide some confidence for the housing construction sector.
‘It will deliver some welcome assistance for aspiring first home buyers who have been confronted by the ever-increasing size of the deposit required to buy a home as the market has risen in recent years,’ the council’s chief executive Ken Morrison said in a statement.
Daniel Walsh, the founder of the Your Property Your Wealth buyers’ agent, said the Liberal Party policy would spare first-home buyers from having to pay $10,000 in lender’s mortgage insurance for having a deposit of less than 20 per cent.
‘So, the scheme saves first home buyers having to fork out for an insurance policy that at the end of the day protects banks and not borrowers,’ he told Daily Mail Australia.
Mr Walsh disputed assertions first-home buyer grants pushed up property prices, pointing out Sydney real estate values actually fell by 3.7 per cent between 2010 and 2012, after former prime minister Kevin Rudd’s Labor government in 2009 tripled subsidies to $21,000 during the global financial crisis.
Mr Morrison’s proposed scheme sparked a mixed reaction from voters on social media.
‘Throwing a few more first home buyers into the fire to prop up property prices. Burn the youth. Save the rich,’ one tweeted.
Another added: ‘Brilliant idea however this scheme should also be for families who have not had a home for 10 years or more.
‘There are many women that have had homes in the past but due to divorce/separation have lost their home & have not been able to save enough deposit to get back in.’
Financial comparison site RateCity has urged Australians to be careful of taking out 30-year home loans with wafer-thin deposits, lest they be left to pay thousands more in interest than they would with a deposit of 20 per cent.
During the past three decades, home mortgage debt as a proportion of household income has surged from 32 per cent to 140 per cent, Reserve Bank of Australia data shows.
Mr North said neither major party had addressed this issue.
‘It is a policy that is actually missing the point. What this is doing is allowing more debt to grow,’ he said.