Should first home buyers be allowed to raid their super to fund a house deposit?
“No”, declared Malcolm Turnbull boldly in 2015, before adding that it was “a thoroughly bad idea”.
Then again, in 2015 the Minister for Networth also said that he thought Tony was doing a dinky-di job …
And that’s the perfect frame for what’s going on with the current housing debate: it’s got nothing to do with creating effective policy — and everything to do with politics.
Right now housing affordability is the ultimate “bbq stopper” issue, and the Government wants to be seen to be doing something about it on Budget night.
My worry is that if first home buyers aren’t careful they may find themselves with apples in their mouths and a banker sharpening up a pointy metal rod in the years to come.
Let me explain.
What do you think would happen if I walked around at an auction and handed first home buyers an extra $25,000 from their super funds?
They’d just throw in a few higher bids.
Then after the house sold they’d say … “By jingo, look at how much prices are jumping! Thank god I was able to access my super!”
A Lesson from the Canadians
Thankfully we don’t have to rely on make-believe scenarios where I walk around doling out dough like some housing super Santa. That’s because our resource-rich cousins, Canada, already have a similar super-housing scheme that’s been running since the 1992.
It’s called the Home Buyers’ Plan, and it allows first home buyers to borrow $25,000 from their retirement account to fund a deposit. The catch is that you have to make tax-free repayments each year — otherwise you’re hit with penalty tax.
So how’s it worked out for the Canucks?
Data from the Canadian Revenue Agency in 2013 suggested that almost half the borrowers had yet to pay anything back.
Well, I’ll take a stab in the dark and suggest it’s probably because they can’t afford to make the repayments. They’re what I call ‘postcode povvos’. All the 25 grand did was help stretch themselves into a tight spot that they now can’t get out of.
A Massive Mistake
Okay, but has the Home Buyers’ Plan at least helped make housing more affordable over the last 25 years?
Canada is recognised as having some of the most unaffordable property in the world. In fact, the Bank of Canada (our version of the Reserve Bank) has gone so far as to produce a Youtube video that warns the public how their record high household debt and inflated house prices could combine to devastate the economy.
And guess what? Australia actually has higher household debt, and more unaffordable homes, than Canada.
One of the original Canadian MPs who signed off on the Home Buyers’ Plan, Garth Turner, now calls the program a “massive mistake”, and has warned our government not to go down the same path.
Turner calculates that young Canadians have taken $30 billion from their long-term retirement accounts that may never be repaid — money that should be compounding away and providing for their retirement.
So will it happen here?
Well, we’re still seven weeks away from Budget night. And the fact that the Government refused to rule out the idea this week suggests that — in the time-honoured political tradition that is Budget night — they’re contemplating putting common sense aside.
Whatever happens, just remember that 2015-Malcolm was right: this is a thoroughly bad idea.
Tread Your Own Path!
Update: Pay The Screamers First
Just over a year ago, I wrote about a company called Nant Whisky.
Nant had come up with a neat little investing scheme that involved investors buying Nant whisky barrels via their Self Managed Super Funds (SMSFs). Nant guaranteed to buy the barrels back in four years for a 9.55 per cent per annum compound return. Smooth stuff.
The problem for the investors was that the person behind the ‘guaranteed buyback’ was a bankrupt Gold Coast businessman by the name of Keith Batt.
In the process of writing the piece, I interviewed Batt and said to him point blank: “Keith, I think you’re selling whisky barrels that don’t exist … so what I want to know is this: when are you going to run off with people’s money?”
Batt didn’t bat an eyelid: “We will buy back the investors’ barrels in four years’ time.”
After my piece was published I was flooded with emails from Nant investors.
They nearly all said the same thing: “Well, I guess I’ve lost my money (sad emoji).”
Yet there was one investor, a bloke by the name of Fraser, who played it very, very well.
I actually spoke to him on the phone and gave him this advice:
“Look, this thing is going down quicker than a scrawny teenager who’s drunk way too much of his dad’s whisky. But these guys almost always have some money set aside to pay off the screamers. So be the screamer.”
At that stage Keith Batt was still publicly assuring his investors that things were hunky dory … but wasn’t giving them back their dough.
Fraser started screaming. He must have emailed Nant 30 times demanding payment.
That’s not an exaggeration.
I know, because he cc’d me on every one of them.
It was like I was in inter-office corporate hell: “Why I am getting all these freaking emails?!”
Well, turns out I wasn’t the only one with email fatigue: Fraser got all his money back from Nant.
Last week the ABC reported investors were “terrified” of losing their money, after the Herald Sun revealed an audit had found that over 700 barrels (sold to investors for $12,500 a pop) never had a drop of whisky in them.
And now the receivers have been called in.
And what about Mr Batt?
Well, he told the media that he’s no longer a director of Nant, and that he has “no legal connection to Nant Distillery or any Nant company”.
I spoke to Fraser last night and got his approval to tell you this yarn.
It sounded like he was in a pub … hopefully enjoying a smooth whisky.
You played a screamer, mate.