Treasurer Josh Frydenberg goes for broke on home ownership

It is clearly going to be an election budget, whether or not we actually get the election this year.

Under planned changes super fund members will be able to tap retirement savings for a deposit.

Treasurer Josh Frydenberg is going for broke on getting people into home ownership.

Various US presidents have wanted to be known as the ‘Jobs President’ – Frydenberg clearly wants to be known as the ‘Homes Prime Minister-in waiting’.

Tuesday’s budget could be make or break on that front. It is clearly going to be an ‘election budget’, whether or not we actually get the election this year.

Frydenberg is going to spend the ‘surprise’ fiscal largesse delivered by the stronger-than-expected recovery – that’s, stronger-than-expected by the supposed ‘experts’ in Treasury – and the tens of billions of extra dollars dropped into his lap by of all people, the Chinese.

Tuesday night, Frydenberg is going to unveil much smaller predicted deficits than were predicted just five months ago in the mid-year budget update – which, by the bye, should in itself make you ponder how meaningful, these new numbers will prove to be.

He’ll get his lower – predicted, not yet delivered – deficits even after unveiling massive new spending programs and being more realistic about how much more existing programs are going to cost.

The two centrepieces are going to be the $10bn-plus for aged care and the various programs to get more people – more people who would otherwise never be able to contemplate home ownership – into owning their homes.

Both are commendable and appropriate, even though there are ‘downsides’ with, again, both.

These ‘downsides’ are simply, unavoidably and indeed regrettably, that some – even much – of the taxpayer money being spent will flow into the pockets of people other than those supposedly being helped.

That’s to say, that the money will go mostly to aged care providers rather than users; to home builders and sellers rather than buyers, as prices are bid up or just raised because they can be.

That said, the programs are still necessary, they are still appropriate. In basic terms, otherwise, deserving people would be deprived of aged care, of getting into homeownership.

There are three legs to the ‘going-for-broke’ on home ownership.

The new one is a government-guaranteed home loan scheme which will enable people – targeted at mostly women single parents – to buy a home with a deposit as low as $8000 or 2 per cent of the home cost.

The Treasurer Josh Frydenberg in Canberra. Picture: NCA NewsWire/Gary Ramage

The government is also extending the scheme which helps people with a deposit as low as 5 per cent of the home cost; and expanding and regularising the ability of people to tap their super to fund a home loan.

The super exercise is clever. The government had to allow super contributions to rise to 12 per cent; it’s now ‘using’ that extra money in super to ‘come back out’ and help fund buying a house.

The single best and most important thing you can do to help people on the financial and investment front is to get them into home ownership. It stands above everything, including building super for retirement.

That’s even before you add on all the other non-financial benefits of ensuring people have secure housing.

In simple terms, if you had to choose between owning a $2m house at 65 or having $2m in super, you’d be far better off with the former.

Now, yes, it’s true that giving more people the ability to raise a deposit to buy a home, or increasing the amount they have so they can bid higher, will tend to boost house prices and so put money in the pockets of the sellers or builders.

But that also misses the fundamental point: it still gets those people into home ownership – and a rising investment – who would otherwise potentially spend their entire lives as renters.

There’s another big point that’s not factored in: the fundamental unfairness of the current state of play.

Interest rates are totally artificially low; being able to borrow at 2 per cent to buy a home – or, importantly, merely secured against a property – is the biggest free lunch ever handed out by government in our history.

If you own assets – shares as well as property – you are in clover; and the more assets you own the more clover you are in. It’s not exactly a mystery why we’ve never had more billionaires.

So why shouldn’t less well-off people be helped into getting access to this free lunch? Especially, as the money’s coming from ‘it’ in the first place?

All this said, there is a seriously troubling aspect to all this. We have evolved an Australia whose prosperity is built entirely on two rather narrow foundations.

They are China buying more and more of WA dirt and paying ridiculously high prices for it; and the building of more and more houses, and even more the trading of many, many more times that number of second-hand homes at ever crazier prices.

Will it last?

Originally published as Treasurer Josh Frydenberg goes for broke on home ownership