One of the focuses of Tuesday’s Federal Budget was housing affordability. Let’s face it, in Australia, housing affordability is everyone’s focus, nay, obsession.
How can ordinary families get into the housing market? How can they possibly save enough for a deposit, not to mention earn enough to make mortgage repayments?
The First Home Buyers Super Saver Scheme
There are a few budget measures that are meant to help, but the First Home Buyers Super Saver Scheme is the most relevant for families. In his budget speech, Treasurer Scott Morrison said the scheme is a way to save a house deposit by salary sacrificing into super.
“The scheme will attract the tax advantages of superannuation,” Morrison said. “Contributions and earnings will be taxed at 15 per cent, rather than marginal rates, and withdrawals will be taxed at their marginal rate less 30 per cent.”
When you take into account the fact that your super investments will (we hope) be growing through capital gains, the scheme looks a lot better than squirrelling away after-tax savings into a bank account with a measly three per cent interest rate.
The most an individual can save under the scheme is a total of $30,000, and $15,000 in one year.
How does it really work?
Let’s assume in a two-parent household, each parent makes a $60,000 salary. Let’s also say that after groceries, rent, daycare fees, new school shoes to replace the ones their son keeps losing, the parents can salary sacrifice $10,000 per year each to super.
We hear you snort as you do the math to work out that this family is salary sacrificing $1600 a month, but let’s pretend they’re really clever about food budgets and they ride bikes everywhere.
After three years, this family has salary sacrificed $60,000 to super. After taxes, they’ll have $51,520 to put towards a house deposit. That’s around $12,480 more than if they had saved in a normal bank account.
Not bad, right?
What can you do with a $50k deposit?
If you live in Sydney or even Melbourne, a $50,000 deposit won’t get you far. According to a housing outlook report by QBE, the median house price in Sydney in 2017 is $1.07 million. In Melbourne it’s a little less scary: $774,300.
The deposit our example family saved is just under five per cent of the median house price. Then there’s the mortgage repayments to consider. We don’t care how many meals this family can make from a single tin of tomatoes and a kilo of mince. There’s no way they can afford repayments on a mortgage for a house in Sydney.
The picture for apartments is a bit better. In Sydney the median price in 2017 is just over $700,000. But that’s likely a two bedroom unit (or one in certain suburbs). To fit a family of four into a two bedder for long, your décor sense better be spartan, and toy collections meagre.
The good(ish) news
The upshot of all this is that the QBE report forecasts flat or even negative growth in housing and unit prices over the next three years (unless you live in Brisbane, Hobart or Canberra where growth is decent). So for once, time is on our sides.
But you better have another strategy for your deposit than just the super saver scheme. Maybe the solution is to start with an investment property. Or maybe you could sell millions of copies of your Feeding a Family on a Budget e-book, or buy a sailboat to live out your days on the high seas as a family of pirates.
If you want to do your own calculations, there’s a handy estimator on the Budget website.