Who has the better first home buyer policy?
The first home buyer scheme proposed by the Labor Party is a “shared-equity” scheme where the Federal Government would essentially buy 30 or 40 per cent of a property with the buyer. That portion of the property would then be owned by the government, and could be bought by the homeowner over time. When the home is sold, the proportion of equity would need to be paid back.
1. Both schemes would lead to prices rising faster than they otherwise would.
Giving first home buyers more money than they otherwise would have means that prices will rise. A similar scheme in the UK to Labor’s “shared equity” proposal led to a six per cent increase in prices in that country. It is likely that similar increases would be seen from either the Labor or Liberal proposals.
2. Using superannuation for buying owner-occupier housing is not recommended.
The family home is not an asset that can be easily cashed in at retirement. Often the equity in the home is used to move into more appropriate accommodation such as retirement homes or aged care facilities. Using superannuation from early on in a person’s life cycle for a home can also lead to far less at retirement, particularly if the family home can’t be easily sold to downsize or does not increase in value as hoped.
First homes are rarely forever homes and most first home buyers use the equity built up in their first homes to get a home more suitable for the next stage of their lives. Having to hand back a big chunk of equity to the Government at this stage, or back into superannuation, will make it difficult for first home buyers to get into their next homes
The main criticism of the shared equity model in the UK is that it has hindered by red tape through the life of the ownership of the property. For example, valuations of the property need to be done when people’s incomes increase, conveyancers have had to get involved. Using superannuation is more straightforward in that is people’s own money, rather than taxpayers
Although not an issue now, it is likely that many first home buyers will not be completely happy about handing back a sizable chunk of their capital gain to the government once they sell, or alternatively forced to put it back into superannuation. This will be even more so the longer that they own the property and the capital gain increases.