lamenting both major parties' housing policies. And sometimes even the best need a fact check.
Alan's overarching theme is right, namely that other things need fixing before stimulating demand. But there were parts of his analysis which didn't sit well with me.
First, the criticsm of the Liberal Party of Australia's "Super For Housing". The claim is this would cost an individual $500,000 in retirement based on 8% p.a. compounding over 30 years.
Indeed, $50k invested at 8% p.a. for 30 years is worth $503k at the end, but the $50k wouldn't be lost so the net return would be $453k.
Assuming 7.2% p.a. instead (the 10-year average return for a Growth fund per Superguide) drops this to $352k. The 5 year return is just 6.6% FWIW. Compounding returns are very sensitive!
On the flipside, if the extra $50k is added to $25k savings to allow someone to buy a $750k house (a $675k loan at 90% LVR), and the value grows by 3.5% for 30 years – half the rate of the super fund – that home will be worth $2.1m in 30 years.
Allowing for ~$1.45m of repayments over 30 years at an average 6% interest, that extra $50k generates a $573k return. i.e. $220k more, tax free.
🤔The gap is monetising that amount and there is a broader discussion needed about funding one's own retirement when they have significant equity in their home.
Next is the impact of the $10B FHB Fund proposed by Labor for the 100,000 dedicated homes. Alan assumes infrastructure costs of ~$100k/lot will be subsidised by this scheme – 12,500 homes p.a. for 8 yeras.
Based on the detail so far, the Australian Labor Party policy is linked to unlocking high-density housing on state-government owned land (to be identified), not greenfields.
For reasons I continually explain, this will result in much higher cost to build (and therefore buy) apartments, even if subsidised with cheap land and federal cash.
$100k saved on a $1m+ 2 bedroom apartment for FHBs isn't exactly creating affordable new supply. Locational benefits notwithstanding.
Meanwhile, the Coalition's $5B would fund enabling infrastructure for larger greenfield areas for mostly private #development . Unlike dense apartments, these do not need major subsidy to be #feasible , which is why the 500,000 figure is (close to) plausible, especially in a combination of grants and loans.
Meanwhile, Alan and I definitely agree on this: The policies of both parties designed to increase housing supply are fine — they're just nowhere near enough.