Episode 153 | Accessing super for home buying? Do it or don’t? | Brendan Coates, Grattan Institute

Accessing super for home buyers, is this their golden ticket or retirement nightmare?
Welcoming back Brendan Coates to discuss the implications of the government plan for home buyers to access super to assist in purchasing property. Brendan is the Household Finance Program Director at the Grattan institute, he has focused on a wide variety of topics including tax reform, housing and superannuation. In this episode the team and Brendan discuss the implications of accessing super and that if putting your super towards a property purchase will get you ahead or put you behind?

Here’s what we covered:

• What has the biggest impact on retirement - owning home or superannuation?

• What is not working for the system currently?

• How have first home buyers struggled in the past 30 years?

• Why should people stop and think before taking out super?

• If people do access super, what kind of property will they get pushed into?

• What would make taking out super a very bad idea?

• What is the appropriate level of super contributions?

• Is this super scheme for the people or for the tax revenue?

• What does the forecasted return look like in 30 years/?

RELEVANT EPISODES:
Episode 124 | Brendan Coates
Episode 89 | Brendan Coates

GUEST LINKS:
Article 1: Australia needs new-generation thinking on retirement incomes
Article 2: 5 key takeaways from the Retirement Income Review’
Article 3: Five reasons the Turnbull Government should not allow superannuation to be spent on a home
Article 4: The latest ideas to use super to buy homes are still bad ideas

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: https://linktr.ee/veronicamorgan

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

EPISODE TRANSCRIPT: 
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded in November, 2020.

Veronica Morgan: Over the course of this year, our federal and state governments have been busy with new and improved schemes to help first home buyers climb onto the property ladder. The latest one surface is nothing new it's been on and off the table. Now for nearly 30 years, our proposal to let them access their super to help with the deposit, which of course is an enormous hurdle for so many. But what will this do to property prices? How will a draw down impact their retirement income economy for the government?

Veronica Morgan: Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent buyer's agent co-host of Foxtel's location, location, location, Australia, and author of auction ready. And I'm Chris Bates mortgage broker. Before we get started, I need to let you know that nothing we say on here can be taken as personal advice. We always recommend you engage the services of a professional. Don't forget that you can access the transcript for this episode on the website, as well as download our free fall or forecast report, which experts can you trust to get it right? The elephant in the room.com did I, you

Veronica Morgan: Today, we're going to explore where the first home buyer should be allowed to access their super in order to buy a home. And if so, under what circumstances does it make sense on both the micro and macro level? And while we're on the subject of superannuation is our current level of compulsory super adequate. What role does home ownership play versus super in the financial position of retirees and Dale was unraveled is complex topic. We're welcoming back Brendan coats, household finances, program director at the Grattan Institute. Brendan's research focuses on tax reform, economic and budget policy, retirement incomes, and superannuation, housing, transport, infrastructure, and cities. He has done a lot of research in this specific area and I believe even modified his position on the subject in recent times. So we're looking forward to this chat and understanding why thank you so much for joining us again, Brendan.

Chris Bates: Thanks for having me Brendan looking forward to this. I mean the first time we chatted, I nearly missed a flight and then the second time we chatted, it was a very juicy conversation. So one of my favorite guests, thanks for coming on again. I mean, last week, the super reforms got released on how they can better improve the super system. What's your kind of key from that? Why is this discussion just so important? Yeah,

Brendan Coates: I think the review itself, so the retirement income review was commissioned by the government, by Josh Frydenberg, following a recommendation from a productivity commission when they did their reporting to super fees. So if you follow the debater superannuation, retirement incomes, there are just endless reviews about different parts of the system that just cascade from one to the other. I just because there's, you know, there's while the system is broadly working reasonably well there's areas that we can improve. So why the review, I think, is so important it's because it's actually been 25 years since we've or sorry, since we've had a holistic view of the whole retirement income system and how it's working collectively. So the last time we had a review piece was arguably the Fitzgerald inquiry in 1993, which is all about site boosting national sightings. And they really, they really cottoned onto the idea of compulsory superannuation as a way to do that.

Brendan Coates: And the reason why this is so important is because superannuation, I think more than most areas of probably policy is just way down by ideology. It's wiped out by history, it's way down by egos of some of the key protagonists. So, which I, you know, I think it's fair to say Paul Keating is, is the most obvious example. You know, he does come out to bat in favor of his baby a lot and that's fair enough. But I think what it means is that so much of there's been some chivalrous sort of bill talking, retirement income policy and superannuation policy that have kind of gone on challenged for a while. And this review is actually sort of bursting that bubble to a degree.

Chris Bates: Yeah. I mean, I guess Kaziny, he's these babies and he's the godfather of superannuation, but what are some of the other big key players out there that are kind of arguing different sides? So I think it's important to, to show where self-interest lies in this discussion and how you can be kind of sitting in the middle and what's ultimately best for Australians in particular.

Brendan Coates: Obviously you've got those that created the system, which for Keating is the most, you know, rightly claims credit and it's the most active defender of the system. You've also because of the way we've designed superannuation Australia. Now, you know, I'll say at the outset, superannuation is a good thing. We should have a right of compulsory savings and we'll get into that. But one of the consequences of the way we've set it up, basically. So, you know, essentially a privatized system where the government compels you to save 9.5% of your income. It gets channeled off to superannuation funds that are not run by the government. It's run by a combination of private, private enterprises. So it used to be more the banks, but also groups like Mercer or others that are on the sort of the private side and then a bunch of not-for-profits. So these are the industry super funds that are run in collaboration between unions and industry organizations. And what that does is over time, you generate this huge, you know, this huge lobby, this huge group of interests that have become increasingly vocal in their space. And I think that's one of the unforeseen of how we set up the system is, you know, these guys, it's $3 trillion of money under management or tight, depending on pandemic it's $30 billion a year in fees. You know, that's a huge interest in the public policy discussion. That's kind of come to dominate retirement income policy overall, even as super is only one part of the system.

Veronica Morgan: Hmm. It's actually 3 trillion, am I correct in saying, okay, property markets or property values in Australia, roughly 7 trillion and stock market is what 2 trillion above that, those numbers correct.

Brendan Coates: The full the property market. Yeah, definitely about seven. I'm not sure about stock super is definitely bigger. I'm pretty sure he's speaking of the stock market. Yeah. Wow. So it's a huge source of wealth. And you've kind of got these industry that he's, you know, it's reasonably slipped. They're going to clip the ticket all the way through for managing your money. But there is obviously a big self-interest that arises from that situation

Chris Bates: Back in 20 know, 12 was something around that period. Right. And does it a forum or an event I guess, and, you know, they were talking about how big the super industry is. And I think at the time it was 1.4 trillion. And so, you know, you're talking six, maybe 10 years later, right. And it's doubled. And that's the thing we superannuation three showing today, but it won't be 3 trillion in 2030. And that's why it's so important that, you know, with setting policies and making it better for, you know, it's just going to grow exponentially potentially from here point of it, isn't it, there's probably two sizes. Brendan can talk on that. A lot of that money is, will never get spent even how it's it's wealth that has been accumulated. And while it's should be getting spent in the economy, it will probably just probably pass down generations. And that's probably one of the big problems with superannuation is there's a lot of money sitting in a tax-free environment that is just keeps on growing and growing and growing. Did the report sort of highlight that big problem?

Brendan Coates: Yeah, it looks so there's a bunch of things, the review highlights. But I think the way to think about it is if you're, it's going to grow to be an enormous system by the time it's fully mature. And so you want to get the policies settings right early you know, you part of growing a tree, putting the stake in the ground, making sure it grows healthily, grow strong. I'd say you want to get those issues sorted before the industry and the sector gets too big because it will be harder to fix those things. I think we're already seeing that as Christmas is around the tax concessions, it's really hard to take something away from people once they've experienced it and enjoyed it. And, you know, that's the world we're kind of in now on the, on the tax breaks. I think the same thing applies to things like the fees and the costs and the like.

Brendan Coates: But the thing that I think the thing that review really showed quite clearly is it's set out a coherent framework for thinking about, you know, what's the system trying to achieve and therefore what parts of the system try to fulfill those objectives. So, you know, the review is pretty clear. There's kind like two main objectives and making sure that adequate retirement comes adequate, which is what say for example, the super guarantee compulsory, super debate is all about. It's like making sure people are not in poverty in retirement. And then making sure that, you know, your, what economists call smoothing retirement incomes. We just decided that people there's behavioral biases where people don't save enough for the future, they discount the future. And if you don't compel them, they will not save enough and they'll have a lower living standard in retirement than beforehand. And the review sets that clear that those are the two objectives, but when it comes to something like the rate of compulsory, super, like you've got to set it at some level.

Brendan Coates: And the w the way that they think about is to say, well, look, you're balancing consumption in retirement, which you increased by boosting the rate of compulsory super or versus all by changing the pension rules, I might say, or you all wages during working like living status of working life. And they're pretty clear that you shouldn't try to get people to say for a higher living standard retirement, that beforehand, because you can tell them people like people can save, they can choose to say to her, or, you know, people who've listened your podcasts. I suspect are on average, trying to make sure they're set up well for retirement. It's trying to grow their mistakes. And they can do that via both the compulsory, right, the patient exists, but you've also got the opportunity and the ability to decide product late, voluntarily on top. And so the review says basically, don't force people, implicitly don't force people to say for a higher living standard retirement than what they did beforehand.

Brendan Coates: And you know, based on those standards, those adequacy standards, we just talked about, you know, it's actually a pretty good news story. So retirees today pretty comfortable. They have lower rates of poverty in financial stress than younger Australians and reporting surveys. Like there's an MBA bank survey. That's the main one people look to the shows. They are, they say they are more comfortable financially than younger Australians. At the same time, you know, they have about as much money in retirement as what they did 20 years ago. And the group that is in trouble, the grid that is very clearly in trouble, these wrenches. So if you don't own your own home in real time, you're going to be in big trouble. And that has sparked a whole device. I bet super passive

Chris Bates: Forecasting, I guess. You know, financial wise of the 13 years, the whole financial advice industry is built around helping you achieve goals. And the number one goal generally for people is, are talking right. And it will come in at different ages, 20, 30, 40, 50. And when you go through an exercise where you would ask them what they earn, what they spend, and then you would basically forecast how their wealth is going to accumulate over that period. Right? The problem is, is in that sort of calculation, there's so many variables that and it assumes the world goes in a linear line. And it just, all of a sudden you get 7% over 20 years. And the reality is if we assumed what happened over the last 10 years, 10 years before that it's so hard to know what the growth over the next 30 years is, but could be, especially, you wouldn't even think interest rates are a bit, 2% for the next decade. And that could be, so isn't one of the problems with these sort of reports is that their variable is that they will use a wrong and returns aren't as high as what people assume the wage increases on as hot as people assume. So isn't it better to overshoot a target and then have more than undershoot it and end up with less, you know, how does that sort of play into the whole discussion?

Brendan Coates: So the report is 650 pages long. And Chris, this is literally why the report is 650 pages long. So what they're doing first of all is like the whole debate about retirement income adequacy. And I should say, you know, the stats, I was just talking about there for retirees today, so that they're just facts. They're not, they're not the Akamai modeling, but the modeling matters, but when you go to, okay, well, what's it going to look like for workers today is the, have we set out the settings of the system in the right way, you know, for people who in retired at 30 to 40 years time. And so I think what's really interesting is when you do all the modeling, so, you know, you have to assume, you know, how long are people going to work for? Like, what's the return assumptions? What, wait what's wages growth going to be?

Brendan Coates: You know, what's the tax settings, you assume the car tax settings continue and on and on and on it kind of goes, what's really interesting is sorry, the baseline I'll give you the baseline tasks of the review came up with, which are very similar to Greitens work. So they were saying that the typical single worker, you know, like the median income earner, who was about 55, 60 grand a year we'll replace 88% of their pre-retirement earnings. And a couple were replaced 82, which is above the 65 to 75% review benchmark that the review nominated gratin use 70, 70 something like 70 is normally the number. I think what's super interesting is like, what are the assumptions that actually change that story? And interestingly enough, the returns barely changed the story at all. So, you know, I think we all focus on super cause.

Brendan Coates: It's the thing that we can see. And it's the thing that's got our name on it, but it actually, if you reduce the returns, you barely change the outcome because you get less Pitt, less super, and you get more age pension. Now we know the age venture means this is relatively aggressive. The assets test but a consequence of it is you could, is that your retirement income is actually not very dependent on your, the return assumption, how much the government spends on retirement income is probably more dependent on that return assumption, but you're the pension. One of the things that review shows is the pension is providing all these forms of insurance for people. So it's insurance. If you lose your job and you don't make any contributions for Copley's, it's an insurance against the fact that returns might be lower it's returns, it's insurance against the fact he might live longer than you expected.

Brendan Coates: And therefore you there's a risky run out of your money. And most of these scenarios, the actual, the actual amount of that replacement, right? Doesn't actually change all that much. So for example, you know, if the replacement rate is 80, actually it was 87% for the single worker at the median worker. Who's 30 today. If you have low returns, half percent lower, it's 84. If you have 1% lower it's 81. Hmm. Interestingly enough, you normally won't get lower returns unless you also get lower wage growth. You know, those two things normally will go together. And then if those two things go together, then you're poor during your working life. And you're poor during retirement and you replace the [inaudible] it's the same. So these things interacting in quite cool, messy ways, but the upshot is that the return assumption is the thing everyone worries about actually matters is less for your retirement income than you'd expect people get to retirement, they get more pension and they just assume that's what they're entitled to, but in a world where returns are higher, they'll get less ventured, but they'll have also,

Chris Bates: Well, I guess it's yes, pensions and insurance policy, but you know, like any insurance policy you prefer not to have to use it. That's the whole idea of insurance. And you know, here's the side of that insurance policy doesn't have to change, you know, here's your time at age of 65 with fed out loud. So I know the exact numbers, you will know it, but, you know, we were expected to live to 70. Now we got a 50% chance that one of the surviving partners are going to live right through the nineties. He used to say that won't be over a hundred. And so, you know, who's to say that we don't have to include the home in the asset test because it's just an enormous amount of welfare. So how does the changes to the pension system just getting overloaded at, by, you know, potentially people having access to spend their money in super, how are they going to potentially have to play out?

Brendan Coates: I think what's really interesting is that one of the things the review sort of says, and I think it's the first line of the review. I haven't got it off the top of my head. It basically says the systems for all this sustainable, right. Which is means the fiscal costs. They're not going to explode. So age pension spending, you know, we're going to have an aging population. That's absolutely true. But age pension spending is actually expected to decline as a share of GDP over the next 40 years. So we need to spend less as a share of national income on pensions in 2060 than we do today. Now, partly that's because of super right. The fact that compulsory super exists helps partly it's because of the design of the age pension itself. So the age pension uniquely in Australia is means tested. So, you know, we don't have a universal pension.

Brendan Coates: And so the more assets you have, the more wealthy you have, the less pension you'll receive. So what the system has done is it's moved us through a where most people will be our full pension. So quite a lot of people will be our population, right? So they'll, you know, vary in gratis modeling. And I think the reviews as well, basically, you know, that 30 year old today, half of their retirement income over the course of the retirement will come from the pension and half will come from super. And we actually think that's a pretty balance because it's each sharing those risks, that risk burden across the individual and across the public. So the idea that the pension's not going to exist, I think is, I think we've got to let that, let that one die. It's going to be dead, partly because you know, if, if in a world where the policy in a world where the public budgetary costs, we going to explode, you say, okay, maybe it's going to change.

Brendan Coates: Maybe, you know, you think of Greece head, the pension retirement age was something like 50 or 55. And that was clearly not sustainable where at 67. I think that's about the right level. And what's interesting is the Krista population is aging. One of the consequences is a growing proportion of people are aged 55 and over. So the proportion of eligible voters that's age 55 or older has gone from 27% to 34% in the last two day tax. They make up 38% of enrolled voters. So try to cut the pension. I think politically is kind of becoming suicide.

Veronica Morgan: You did mention earlier about, you know, the, the superannuation system is broadly working unless you are a renter. And, and I guess this is where we sort of get into this idea of there's a bit of ideology around, well, you know, you've got to help people get on the property ladder. Otherwise it disadvantage in their retirement, even if they've got superannuation or buy, or you're sort of saying that if you're on the pension and you're renting then risk for your horrible situation, what is really the benefit of home ownership? I mean, obviously we're, we're proponents of owning your own home, but w where does the difference come at retirement if you don't own your own home?

Brendan Coates: Yeah. So I think this is one of the things where we're mistaking causation and correlation, right? So, you know, it's clearly true that housing has become more, more expensive and therefore less affordable for a lot of people. So we see home ownership rates are falling pretty sharply amongst, you know, younger cohorts and the like largely the bottom 40% of, of any income group of any age group, I'm sorry, but any bottom 40% by income of every age group. So, you know, back in, you know, 30 years ago, something like 60% of those aged 25 to 34, if that were the poorest 20% of that group, 60% of those own their own home. Now it's 20 20%. So that's a huge collapse. And you're seeing that feed through, and basically every group under the age of 55, some of that people will make up by the time they retire and buy a house light up.

Brendan Coates: But, you know, I think quite a lot of that's actually bite deep. So what's happening is passing to become more expensive. And so if your people are able to afford to buy a house, now, what that means is you kind of pay for getting to retirement today who are the bottom 20% of the income distribution largely, and they don't own their own home and they're in deep trouble. Now, if they had managed to buy a home with the resources they have, I don't, I suspect I would, well, why not? I don't think they would've been able to do it, but even if they could, I suspect they'd probably still be quite a lot of trouble because instead of having, you know, paying ranks, they'd be still trying to pay off a mortgage of retirement that I can't afford.

Veronica Morgan: Hmm that's that's what worries me is this, this there's a lot of ideology out there about, well, okay, you should give up your super for a house, you know, and it's like buying a property. Isn't always the best financial decision because of what they buy.

Brendan Coates: Yeah, that's right. So I think the better way to think about it is to say that the reassignment systems working with the pensions that have roughly the right level, like the review makes that pretty clear instead of at a level that's above the poverty line and view are very few patients are in financial stress. It's not an extravagant lifestyle by any stretch, but if you are on the pension and owning your own home, you're typically not in financial stress and you're not in poverty. If you don't own your own home, you're in deep trouble. And I think we just need the, the answer to me would seem to be, you know, boost the pension that people receive. If they're renting by increasing the rate of rent assistance they receive would be the most obvious way to solve that problem, given that you're unlikely to change the rights of probably modest sheep by giving people access to soup.

Chris Bates: And that's the paper today, you know, that have, you know, haven't been able to buy a home for whatever reason, you know, health DePaul's financial savings family. Like there's so many things that, you know, make it hard to save. And even just the cost of living in our capital city is just so high that actually saving that amount for the deposit. And then somebody hits you like a job loss, and then you lose all that money in, you know, years just tick by they're the ones that are really hurting, right? The people that know, yes, the pensions, you know, if you are $400 a week or whatever it is, but you know, they have, I kind of use that for it also then go and pay two, $300 a week in rent. And then still survive that. So you're saying that just to bridge that gap there's rent assistance, but for the people that are still got, you know, 10, 20 years from retirement, 30 years, 40 years, what's your view when saying, well, let's give them access to some portion of that superannuation, whether it's 10, 15, 20, 25,000 to help them bridge the deposit gap that they need to buy their first time.

Brendan Coates: Yeah. It's a really, it's a really interesting question. So like, let me put it this way. If you allowed people to access their super, some people would buy a house that wouldn't buy a house. It's pretty clear that, you know, if you've got 10% a year wage locked up in super, that does affect your ability to cipher deposit. Like I don't guarantee, you know, we shouldn't deny that that's probably true. And it does mean that some few people buy a house. I just think that's, that's just probably a fact. The question is, does giving them access to their super actually, you know, improve housing affordability in general. And for that group in particular, for some of those people would probably mainstay by half, so that otherwise kind of fall cause like, you know, I've become the deposit constraints. Yeah. That's not, that's not crazy. The problem being that, that, that the effect you're going to have is you're probably also going to boost task process overall because you're adding to the demand of housing without doing anything about supply a hundred percent. And that's going to worsen has a for housing affordability in general. So it's going to have a second round impact that you don't lock.

Brendan Coates: Even if you do it, it's not going to solve the problem. You know, we know that housing has become expensive for a whole host of reasons. Some of them like low interest rates, we really can't do a lot of bouts. Like the reason they just strikes the low is because we're in a recession. I even before we're in a recession, you know, there's been a secular decline in interest rates around the world, any federal reserve bank, didn't cut rates, we'd have high unemployment, and that's something we want to avoid, but other things we can solve for. So we can fix planning routes that prevent the supply of housing, you know, re metering some of those major cities, we can fix tax settings like native D-ring of capital gains tax, the scam or whatnot. Now all of these things are hard, which is why no one has done them. And super, I think, falls into that category of the kind of thing that you do. That sounds good. It's going to be popular, I suspect, but it's probably not going to make a big difference to the problem in the long run.

Veronica Morgan: And that's the danger of it, isn't it? Because it's very short term thinking, it sounds like a bandaid. It's easy money in a way because they'll sitting there and people feel a bit ripped off because they can't access it. And in a way there's some, I guess we've got a couple of little precursors on this. I mean, we've got, and we've got some data obvious access to data of the amount of people that actually drew down their super because of COVID right? So they sort of fudged up hardship and took out 10 or $20,000. And a number of those have used that and put that towards a house deposit. And we've discussed this before and I think the banks at first seem to have the attitude, they weren't going to reward that. But now Crusoe, I understand some banks are lending on that. Is that fair to say?

Chris Bates: I don't know where that money is from after a few months, it's just seen as savings right over the last five years for the last three months. And so I can't match that to your super. And so that's how the COVID sort of when they were happening April to sort of July, August and banks were not looking on that very favorably in the financial districts.

Veronica Morgan: So it'd be interesting to know, I guess if we could get access to how many people have actually use it for that. But also if you look back at just generally speaking our attitudes towards super and the big sort of craze towards setting up a self managed super fund and buying investment property in it, that was, it's paid it out now because the banks have sort of exited that market. But you know, that was really popular. A good 10 years ago, 10, even five years ago, it was still happening. And I think too, because a lot of people thought, great, this is my chance. And this, these aren't first time buyers, of course, you know, and they can't live in these properties, but it certainly, I think Goes towards our general attitude towards housing or property being a better investment than our super yeah.

Brendan Coates: Which is an interesting one because you know, you, you, you guys would know better than anyone, right. That good investment and investment behavior or principles is that you diversify your, your risk. Right? So, and buying a single house to live in is for stars and spending, you know, five, six, seven, eight times your annual income. So if you think you've got 40 years of income and you work income earning capacity in your life wage, earning capacity, you spend eight times of that on a house. That's an enormously concentrated risk in a single investment in a single area, which you know, is the way that Australians have done it, but it does generate some risks to then add to that by buying investment property. You know, I think a lot of people have made a lot of money out of investing probably because interest rates have fallen and it's been a one-way base, whether that continues to be the case, I think is a really interesting question.

Brendan Coates: But the value is that you can use leverage to lever up your investments that you can't use for super, but you're taking on some pretty big risks in doing so. And you know, my general sense on SMSF is, you know, they do appear to underperform, you know, an upper regulated, super funds. So like a big super funds, like a Australian super or uni super or Hostplus because they're not diversified. And so I'd be very careful about, I've always thought that you should personally, we should be very careful about taking on that risk could generate a huge return as it has over the last few years, if that risk pays off. But you know, you, you, you are taking big risks in and concentrating all your wealth in a couple of houses in Sydney or Melbourne. Then you have something like COVID happen. And maybe that means people move out of the city. Maybe that suburb that was attractive is less attractive. Why can't, you've got to, you've got to play that very carefully.

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Chris Bates: I think you made your brilliant point that, you know, one thing is to help people go and buy their first time. So you allow them to access their super, but ultimately it's just kicking the can down the road. You're just creating high house process, which is gonna make it harder for the next generation. And it's just this constant problem. And that's great for people have got property, you know, access to people to get money out of super,

Chris Bates: Without doubt, increased demand dramatically. But people who wouldn't be able to buy can now buy and the Lord wanted to do it at the same time. And you create this like almost mini boom of first-time buyers entering the market, which is what happens when you get, you know, state government grants, et cetera. But your interesting point is there's no point doing that unless you solve the real problem, which is supply and that's planning controls. Really so, you know, but that's difficult at a country level and a state level and then individual council level, and then you've gotta get developers to actually build it. You know, it's just such a big base. That's so hard to, you know, take action on. And I don't think the other option is, you know, cancel a negative gearing, increased capital gains tax. You know, labor took that to the last election was guaranteed to win the election. And for some reason they didn't lose, they lost the election. And part of that probably was that policy plus the, you know, the franking credit. So is the government going to be going to do that again? Probably not in the foreseeable future. So do you think that, you know, the government's going to go for the easy bait which is, you know, next budget just allow people to take an amount out of super because ultimately that's good for the Australian economy to pump up the construction industry.

Brendan Coates: Yeah. Look, if you ask me to forecast, I government's a likely to do the hard thing that solves the problem or the easy thing that sounds good. You know, I think we've had 25 years of track record that they've done the latter rather than the full, you know, negative gearing in and franking credits. I think my sense is in 2016, when labor took ADV or into the election, it didn't hurt them at that time. And I think crucial theme that was going on in his house prices were rising. One of the challenges of hiking that election commitment through to 2019, his house prices were falling. And I think the public conversations very different as soon as prices start to fall, because you can't have improved affordability without someone losing like prices have got a fall for housing, the ability to improve. Exactly. And as soon as that happens, as soon as prices started to fall, like a lot of people get nervous. And I think the politics shift a lot.

Chris Bates: We're now the right time. Cause negative gearing is actually the least right now because of low rates. And so that cashflow and interest only loans are sort of back and the responsible lending thing is potentially going to change, which means that people can get interest only easier and investors can refinance and except for like that. So if you're going to implement a policy like Nick canceling negative gear, and now's the time to do it because rights are low. Yeah.

Brendan Coates: Because rates are so low, I suspect, you know, most analysts these days, they're starting to think that house prices are going to really take off.

Veronica Morgan: Yeah. Yeah. Well, we're already saying it, but this goes back to that supply thing, right. Because what we're seeing take off is established dock. We, aren't seeing Um lots of price growth in demand for brand new stock, which of course is good for the economy to have that takeoff because we obviously what construction industry, what employs a million people, et cetera, et cetera. What worries me with the, you know, the government's temptation that you use the word seductive in your in some of your articles, Brendan, it's very seductive to look at all this money and say, well, look, this is a great way for first home buyers to get onto the letter to access their super is it, there's going to be an obvious temptation to go to say, well, let's, let's put that in a bucket along with all the first time buyer incentives and stamp duty concessions, et cetera, et cetera, that all skew all say, you really have to, in order to take up on this free money from the government remedies around that you need to buy brand new or off the plan.

Veronica Morgan: And I would really worry if that is what's offered with access to super as well, because the problem is that that we supply, yes, you've got to create more supply in order for prices not to go up, but if you're taking your money out of an investment, that's designed to have the value of that investment to go up over time, to go and buy something that is not going to go up in value because going up in value makes it unaffordable for people. Do you get my drift? It's a bit of a problem there, isn't it? Yeah.

Brendan Coates: Yeah. So I think it's a, it's a tricky one to, to, to base public policy on your expectation. Like, you know, we've talked about some reasons why supervising is not a good idea. But I think it's dangerous to, to, or it's difficult to base a public policy on the expectation about what's going to happen to process or the returns of relative assets, because we just don't know,

Veronica Morgan: But don't yes. And of course we don't know, but the problem is though that if you're taking it from a compulsory savings where it's basically locked away in order to be a true investment into something that where there's my phone into something where there's actually quite a lot of data to show that prices across the board with brand new apartments and house and land packages, you know, a lot of price falls, a lot of second sale losses. You know what I mean? There's, there's a lot of data that shows that it's the riskiest segment of the market. And so you taking it out of, what's proven to work into something that has got a high probability of not working. And then you're saying that, you know, you'll get to retirement at your own, your own home and you probably have to get pension because you get my drift, but you still you've potentially got an asset that you owe money on and it's still worth, it's not worth much. Yeah.

Brendan Coates: It's interesting. It is a risk. Right. And so one of the challenges here, so I think of it this way. If you, if you buy a house, if you take your money out of super and bought a house, then you're going to have an asset that's worth something by the time it may be worth less or more than what you paid for it. Right. And you're going to have to try to pay it off by retirement. What you clearly have less super like that would be, I think that's undoubtedly true. Yeah. I think what's interesting though, is that people don't tend to draw down on their housing assets in retirement either. So if the house is worth a bit less, because you've ended up buying perhaps not the right thing or, you know, and there's a lot of risks that come from buying off the plan, right?

Brendan Coates: It's a, it's a much riskier proposition just because you don't know what you need gonna get. And I think a lot of people are very reluctant to go down that path, particularly for something that's going to be their family home, not quite home. So it's just, it's really tricky, right? Like this, isn't an easy area of public policy. You're trying to combine the economics of housing and the economics of super, I suppose like the thing I'd be the way I would think about it would be, it kind of comes back in part to what you set the rate of compulsory super debate. And so if, you know, if the purpose of the system is to make you set a default for most people so that most people are saving as much to have enough in retirement compared to beforehand then you know, my sense is you shouldn't allow access for early access for kind of any reason, you know, because that 9.5% number, which we think is about right now, but he's doing that really well.

Brendan Coates: If you compel people to go to 12, then you are forcing a lot of people to say for a higher living standard retire. In fact, mostly it was safer, highly centered retirement than what they had beforehand. The bottom 30% of income owners will get a pay rise when they retire the pension. Plus what super they have will be higher than what they had before they retired in that world. I'd be open to saying, look, you should be able to take out that anything about the 9.5%, right. Should not be preserved. You can take it out of tax time because then the super is doing its job of the 9.5%. Right. But you should be able to take it out for any reason you want it shouldn't just be the housing, but I wouldn't, I'm kind of reluctant to save people tapping into the, the underlying 9.5%, which I think is where the government may be going in some of the public commentary. I'd be inclined to say, no, you shouldn't allow that to happen.

Chris Bates: I guess the issue me, that's already complex. That's been incurred and tinted and tinkered with, you know, 30 years. Right. You know you know, the funds and the industry and et cetera. And that's just going to make it even more complex. You know, you had defined benefits before, et cetera. And sometimes simplicity is the best policy. Do the, government's just going to say, well, ultimately we're in a recession, you know, we've got unemployment, let's just kick the can down the road. Let's just do the 12% in say five or 10 years time. Let's just say how things recover. Let's put more money in our Australians pockets rather than just canning it and sign the nine more, 9.5% the best

Brendan Coates: Look, I think the clearer, the clear exit from the review is that the 9.5% right. Is all you need to do. So, you know, the, the, the reason why you don't stop it is basically the politics. You think it will be very hard to stop it because if not 0.5% enough, why are you forcing people to save more when it's hard for them decide the only way they can cut cataract matte counteract. The effect of that to Pulsion is to take out more debt right? During their working lives. So 9.50 cent is enough. You should stop there. I think a second ed series. Okay, well, look, it's reasonable. If you thought 12 was the right number, then you're still lying for a period right now is not a bad idea because because you got the economy's in recession. The last thing you do during a recession is trying to lift national sightings, you know, savings rates already through the roof. Why would you force it up higher? So I think the obvious answer is don't do the increase and that's why, but that's why I think this alternative where you do do the increase that you let people to cash it out is probably an easy one for the government to go to because it negates the whole debate about does super come from wages. Am I going to get up high rise and stairs?

Veronica Morgan: Well, it is a pay rise, isn't it then credits, but also forces the employers to pay it. You know what I mean? So that, that takes out that, that, that argument as to, well, if, if the super goes up, then there's not going to be a pay rise. Well, there's, there's a wage rise built into the increase in super, then you get access to it.

Brendan Coates: Yeah. I think the economics are pretty clear that if super goes up, it will come from wages, but the politics is such that that is sometimes a hard thing to sell because you're trying to sell a counterfactual that, that, you know, and selling a counterfactual is difficult. It's not something that people can see. And so, you know, I find this whole argument that sort of super, you know, we haven't had wage rises since 2014, when the super increase was delayed, proves that super doesn't come from wages to be pretty, to be pretty silly wife thinking about it because you're ignoring everything else that affects wages growth. The only way that's convincing is if you think super's the only thing that affects wages growth. Whereas the groups that have actually looked at that question in detail reserve bank, gratin, and researchers from I that were commissioned by the review, all kinds of the conclusion that most of the comes from wages. And so if you don't, if you increase the rate of compulsory super you'll get lower wages growth than you otherwise would've gotten.

Veronica Morgan: Hm. Well, makes sense. Doesn't it. So what do you think of the super saver scheme?

Brendan Coates: Look, I think it's one of those things. Again, it sounds good. It's not going to make a big difference. What you're basically offering people is access to tasks, a tax preferred savings vehicle for their, for their housing deposit. You know, because you can, you can put money into that scheme Addy pre-tax in gummy based with shopping in your super fund. And it sort of like sits there and you can then take any of those voluntary contributions over a five-year period and withdraw them for half.

Veronica Morgan: Yeah. Well, and you get more, you, you suppose they get a better return than by sticking that money in the bank. And also you're getting a text saving, right?

Brendan Coates: Yeah, that's right. So it's, it's a way to just turbocharge and be deposited making it work a bit harder,

Veronica Morgan: But still limited though, isn't it? You don't get it. You don't get to put a hundred grand

Brendan Coates: In. They know that

Brendan Coates: That's right. And you've got to, it's obviously money that you've got to be out. We have the ability to save above and beyond, you know, out of the normal income.

Chris Bates: Exactly. And that's why this, if the government do what potentially could happen is that group can not policy because it's not really making a huge dent into, you know, helping people get onto the ladder. And I could say, Whoa, that's a lot of people, you know, 25,000 per individual to get access to superstar, a couple can get 50. And then you've got pair tit last couple of weeks signing the no longer stand Judy, let's move it to land tax, which I'm sure you're a fan of Brendan. If you put those two things together, someone who needed to say, buy a house at a million dollars, or it could be 500,000, doesn't really matter. Let's say you needed 150,000. Well, you don't need 150,000 anymore. You've got 50 out of super. So now you need a hundred, you have to pay stamp duty, which is 50. And now you're in the 50,000 savings. That's if you put these two policies together at the same time you're going to increase your man dramatically because you know, that person doesn't need 150 to get their first time in a million dollars, then you need 50. And that could, you know, you might not even anything, if you wanted to buy a house at, you know, 500,000. So, you know, how do you kind of feel about the land tax sorta debate together with a super debate at the same time turbocharging things like, is that,

Brendan Coates: Yeah, so I think it's pretty clear that if, if new South Wales does go down the path of giving people the option of paying land tax or stamp duty, because that's the idea, right? You get to choose. It would probably be for my suspect near the end of next year. If they went ahead, you get to choose whether to pay your land tax. You know, they're, you know, they're going to have thresholds. So it's only, property's worth less than, I think it's 80% of properties. There are only four that you have this choice. And so like the beehive and Potts point, you still have to pay stamp duty. It's clearly going to rise process in the short-term like, I think that's an ambiguous because your, all of a sudden relaxing a deposit constraint, you're going to bring forward some purchases. Now the statute change in new South Wales and the long-term should probably lower prices because in the long term, you are a bit allocating the housing stock because you will see turnover locks, right?

Brendan Coates: If you no longer have to pay Stanton, like, you know, we're living in a house in Melbourne with two kids, all of a sudden it started a year. I didn't realize I needed the home office. Now I need a home office. I'd probably be in a different house right now if it wasn't for stamp duty. So we're not in that house. That's the costs of statute is we're not in the house that better suits Suzanne aid. So there's probably some retiree that will take that money and go downsize somewhere. If I could probably do the country because they don't feel the need to be in the city anymore. That's the cost. So if you take away stand duty and replace the lead tax, yes. I think you will add to process in the short term, but in the longterm, you will probably reduce better allocate the housing stock. And so it'll, it'll make housing more affordable. The one thing I do want to say about the new South Wales reforms, I'm a fan of the idea of changing, but there's a big listen, big on essay questions with those reforms. You know, what you're doing is your giving up upfront, the standard you used to receive from all those people and getting a land tax is probably with one 15 to the value.

Veronica Morgan: How are they? Yeah. I wonder how they've modeled that and how they're budgeting for that shortfall.

Brendan Coates: We haven't seen the modeling yet. Because that's going to be, the question is because I think after 20 years, half of properties in Sydney in new South Wales will have transferred to the new system, but that means half habit. And so on top of that, you also had, so that's a big hole in your budget revenues for quite a long time. And that's why we would never a fan of the opt-in model because in normal times, balanced budgets, the politics of balanced budgets, the site down that's means that's a non-starter because steady is the second largest source of tax revenue for the States. If you blow a $5 billion hole in the state budget, like that's political suicide in normal times now COVID means the budget's already got a huge hole blown in it. And all you're doing is tipping a couple of billion down the hall, and you bear Bailey here at the bottom.

Brendan Coates: But you've still got this problem, but it's a long transition. And you've got this adverse selection problem that if you say your, I imagine when you finish your cruise, when you, you you talk to your clients and they've got this choice between stamp duty and land tax, you're going to help them run the numbers and say, how long you do you think you're going to have to hold this property for? And if you get a hold of, for short periods, you know, choose the Le the the land tax and you get out for a long period, you gonna choose the statute. And so people are going to choose the thing that's better for them, you know, that's human nature. But the loser is the, is the, is the tax office. Like they're going to collect less revenue than what I did previously. And so those things together that adverse selection problem are people choosing what's best for them. Plus the huge haul in revenue from transitioning from Sandy to land tax, with one 50th of the value, you could have face a big budget for shortfall in new South Wales for 20 years. We just don't know. And that's the thing that, until we know that answer, but that's the thing that could make the whole thing fall apart.

Veronica Morgan: How has it played out in the act

Brendan Coates: From model? They just did, you know, it's, it's a lie that government it's been allowed to go on for a long time. It's basically a glorified local council. Look I say, this is a form of Canberra. Like the system works really well. But I've got a lot more, sorry. I just lost all that Canberra listeners.

Brendan Coates: I think most ever this is,ubeing public servants in the life would probably agree with you,uwho agree with this, but they're, they gradually transitioned at stamp duty and rice land tax on everyone. So in new South Wales, you don't pay land tax unless you choose to in the act, you have to pay land tax. Even if your, you know, being in the house for 30 years, it just starts small. It gradually grows over 20 years. It's like, you know, the frog boiling in the pot, the idea is you're going to scream less,ubecause it's happening gradually,uthat option is I think, a better model, but it's politically very difficult. I need to, Sightline new South Wales with house prices, icons income, 10 times income. That's a big imposs pretty quickly,

Veronica Morgan: Especially if you just bought a property and pager, you know, 4% stamp duty, you think, that. I don't want to cut that and cop land tax. Yeah.

Brendan Coates: Yeah, that's right. And so you've kind of got three problems. You're dealing with the transition revenue, stability, recent purchases, as you just said. And then the asset reaching couple, you know, people who are pensioners that either home or $2 million in Western suburbs of Sydney, but are only 20 grand a year on the patient. Now there are various ways you manage those transitions. The act model is one way did the opt-out model is like the path of political lease resistance that new South Wales has gone full, but it puts a big question Mark, about the long-term budgetary cost of the change. And until you see that, I don't think we'll know whether it's going to, whether it's going to one have bipartisan support, because life has said so far, look we're open, but they want to see the numbers. And you know, if it turned out that you know that you're going to see a big budget hall for a long time, and I lied to Gumby kids more about services and service provision, they may say, no, they don't want to do that. And then it's question about whether it gets up.

Chris Bates: I probably would say, I mean, on the land tax thing I think you're right in short term, you increasing demand dramatically because you're lowering the deposit hurdle. You're also giving the incentive for people to trade up because, you know, they don't have to have the deposit hurdle for the next time 

Veronica Morgan: And down, you know, cause a lot of retirees don't want to sell out of the big house and downsize because they don't want to be, they don't want to pay same duty.

Chris Bates: There's a lot of other reasons why they don't want to do it. Firstly, they ultimately they've got memories in those homes. They've got grandkids that got those homes where they want to come and stay. It's their best asset. They know it's their best asset they're growing. Tax-Free, you know, they know that if they sell out of that that, you know, they're, they'll probably might regret it one day. A lot of people, just a lot of that generation would prefer to stay in their home, might modification modifications to the home, then downsize. I think the whole COVID thing is scared the hell out of that generation. You know, and their thought, well, I'm so glad I had a house through this rather than lived in an apartment. So the healthy so I think that generation, assuming that land tax change stamp duty, the reason they're not downgrading, I think it's don't they don't think it is. I think maybe the upgraders don't want to pay that standard. But the problem is upgrade is take on more debt. And so upgrade is, you know, if you sell your house where you spoke about their burned and and you need to study well, most likely a human Nigeria or back to the bank, responsible lending changes, you can borrow more rights, a cheaper you'll go, you know what?

Chris Bates: Let's just push the envelope a little bit. Let's just take out a few extra hundred thousands. And then you've got the first-time buyers, adding debt in transactions, create more debt. That's just ultimately what you do. And so I don't think you'll create much more transactions in the downsizes. I just think that's not the reason they're not downsizing, but what you ultimately would do would create more upgrading, more flippers and more and more investors because investors are saying, well, you know, if I need to don't want to buy an investment property, I need equity to cover a 20% deposit plus stamp duty, but now it's only, you know, 20% or maybe I can get interest only loan at 90%. So I think you'll find that I believe that land tax will be a huge rocket up prices if it happens. Because ultimately you're just creating a lot more demand with very little new supply.

Brendan Coates: One thing to keep in mind, obviously I think you're right. It would probably, you know, people like me will take on more debt and we'd buy, right. You've got to, you've got to have the fight. You've still got rules around serviceability. That land, the land tax will be built into. So that's an ongoing cost that banks will build into into their, their mortgage, their credit assessments for individuals

Chris Bates: Potentially outside a time where, you know, April next year, responsible lending rules are likely to change. And banks are already going back from the forensically, looking back at people's expenses. And it's pretty likely we're going to move to a hand model where expenses are not verified. And if that's happened, which is what the, you know, Friday wants. Then yes, you might increase living costs a little bit higher for this new rates, but ultimately they're spending a lot more than our anyway. And so and you've got lower assessment rates because of lower rates. So borrowing capacities are already up dramatically. So if you reduce that a little bit because of the high annual land tax bill it's not gonna make a big difference if that makes sense.

Brendan Coates: Yeah. I think that's mainly, that's mainly a function of the lending rules, right? So I've never loved the responsible lending rules as a, as a concept. Not to say that I don't think you should have pretty strict or very carefully thought through rules around Prudential regulation of credit, but you know, you've probably got two sets of rules. Like the responsible lending rules are sort of, we're sort of saying banks should just should judge consumer's ability to repay by not just looking at their income, but also verifying their expenditures to make sure the line was right for them. You know, we had that CAD, the famous, you know [inaudible] Wagyu case where, you know, justice para throughout the case against Westback, even though both Westpac and ACIC agreed that there was breaches of responsible lending. And the judge said, I can't see anything here though.

Brendan Coates: I think the laws weren't great word, a great way of actually implementing, you know, the laws are not the main way you assess credit risk, but I think they are a way of making sure that people who are assessed as a good credit, who might end up in financial stress that still keep repaying the loan that's what those laws are intended to do. And I just don't know if they did a great job in practice have actually achieved that outcome. Yeah. Underlining that you've still got the sort of credit assessments where, you know, banks have got to assess who's ability to repay issue me, you know, and you just ride a site to an opposite of these points, which we can, these points about the interest rate on the line that's being offered. If you were worried about credit risk and financial instability I would be using those leaders rather than the responsible lending horse to sort of try to keep a lead on, on the whole show.

Brendan Coates: If you're worried that financial stability is at risk, or if you're worried that if interest rates, which may well go lower, at least the term structure is going to go lower. No we're going to expect to just raise to be low for a long time. Then maybe you, you, you use those macroprudential rules. You use those credit risks assessments, the serviceability rules to manage the risks, the house classes explode, which is I think a bit of a risk at the moment, given interest rates now expected to remain low in a long time stamp duty changes. You know, the whole works super housing without add to that as well.

Veronica Morgan: So let's go back to super for a minute before we sort of hit you for a Dumbo women because women typically retiring with hell of a lot less super than men and women have a lower rate of home ownership than men, you know, outside couples. The rate of homelessness of women over 55 is growing. That's the largest growing cohort. So that 650 page report all about superannuation situation in his country. What has it, is there anything in there for women about women recognition of this rectifying? The situation?

Brendan Coates: Yeah, I think, I think there's actually quite a lot in there. Cause it goes to, okay, going back. Think about your two purposes of retirement counselor, the respect to adequacy, are you at risk of financial poverty and stress? It's like, yes, women are at higher risk. They own less, that's largely reflection of the fact that by your in less they have lower incomes during their working life. You know, there are lots of reasons for that therein. They're less attached to the labor force. There is the gender pay gap, which is pervasive and ongoing and, and all of these things. And then you've kind of got, are they saving other is what, what share of their income are they replacing your retirement? And what's interesting is because while women are much more likely to experience poverty and we absolutely should care about that, it kind of goes to what the solutions are because the second one, which is are women replacing, you know, living, having a good as real living, same retirement as what they did before.

Brendan Coates: And on average, they've got a, they replace a larger share of their income than men because they own less. And therefore the pension's worth more right as a share of their income. So this is not to say, this is not a problem, but it goes to the instrument that you use to solve the problem. Because the rate of compulsory scooper is about making you have more in retirement relative to when you're working now, women are in poverty, what would have been probably in retirement. They're also more likely to be poverty during working lives. So if you say, raise super to solve that problem, then all you're doing is making them poor in retirement to make them less boring, more pouring, where he left to make the list four at a time. It's not the right solution. What the review does is it did some really interesting work saying, okay, what's the gender gap. And then how much of the gender gap is made up for by the age patient, the income support system. And you know, the gender gap in retirement incomes is about 15%,

Veronica Morgan: Right? Roughly the same as your working life, right? Was it 17%?

Brendan Coates: I think during the, by the gender gap in super so, yes, it's similar to the gender gap theory of your waking life income. But the gender gap in super at retirement is much bigger. It's something like 40%. And so the pensions, the thing that is equalizing the gap between men and women and keeping women out of poverty, to the extent that they're not important that lowering otherwise low-income women would be in poverty. And so it goes to what you're doing through solutions. So there are some things you could do, like pastry from paper into leaves, you know, that will clearly target the gender gap because women more likely to take, you know, take time out of the workforce. But a lot of the solutions are not about super. There are about just fixing rent assistance. Cause if you fix rent assistance so that people who are not in poverty, who I do most people would be probably in retirement.

Brendan Coates: Our renters solving that would solve a lot of the poverty problem for women rising, super doesn't solve that problem because it makes them poor beforehand. You could do very super top ups. But those, those things tend to be not very well targeted by income. You know, so if you are few Chuck, $10,000 into everyone, who's, who's who's like owns less than 40 grand into the super candor who launched us and 40 grand when they're 30. Some of those people end up being in poverty in retirement. Otherwise some of them are just say students and ended up having a high lifetime income. So, you know, I tend to think what about us, all these

Veronica Morgan: Baby button instead of the baby bonus, it could be a super bonus for mothers that have given birth, taking time out of the workforce. But I don't know, I'm not into it in policy, but you know what I mean? It's like it unfortunately biologies against women, you know, it's, I don't know any men that have had babies and you can take time out. Of course, if you can take a parental leave, if you're a, a man, but there's, you know, there are certain biological functions that women's bodies do that men's bodies can't. Do you know what I mean? And so, and then it's also that the traditionally that the, who was taken more time out and taken part-time work, et cetera, et cetera, in order to to parent. And it's not say it's has to be always that way, but it's just the traditional way. And obviously that's been one of the biggest impacts. Would we be saying in terms of the pay gap? Yeah,

Brendan Coates: Absolutely. So you've got an unequal distribution of care responsibilities across the community and it just is skews heavily towards women and that's a problem. We, something we should fix. And that compound a bit. So what it does though, is because super soup, like the gender inequity in super was built into it from the, from the beginning, you know, because what you get out is what you put in and you put in less, if you are in the workforce less, you're putting less, if you work less than men for doing the same work you know, these are familiar tribes, Veronica. So, you know, the, the, the first way is I would try to solve the problem is try to avoid poverty and poverty is about the income support system. So strengthening that income support system to actually solve that problem. Because it's, what's interesting is we did some analysis on the submissions to their sort of retirement income review a while ago.

Brendan Coates: And it was really striking, you know, superannuation gets mentioned more in submissions then all of age pension, housing, homelessness, aged care and rent assistance combined, right? You had submissions that were talking about gender that mainly talked about super and said very little about the income support system. And I think it's because the system skews to what super been the solution. When in fact there are probably in a lot of cases, better solutions in the income support system that would solve a lot of the problems that you most worried about because the value of a pension, right, is that say you're in a case of domestic violence. You know, if you've got super yes, it's preserved, although increase. And this is one of the risks of you allow early access that it connects acerbate that, that gap, because you have to work with partners that force the women to take out their super, the value of the pension is it's an entire world that follows you wherever you go.

Brendan Coates: So the moment you leave, you get access to that pension and retirement. It's almost a safety net that you can take with you if you, if you want to get out of a difficult situation. Whereas if it's all in super, that ends up in some SMSF that sort of jointly run, getting access to that money is really hard in the event of a divorce, particularly a divorce that's not amenable and it's expensive because you got to get lawyers involved. So there's real value in having the P pension, the income support system is a way of getting people out of those situations and in using the pension and need and fixing the gaps when it comes to court system, I think would go quite a long way to solving the problem of basically it's a more efficient way to solve the problem of poverty in retirement for women is to solve poverty because they will be the main beneficiaries of those improvements. And he comes support system.

Chris Bates: You got a property Dumbo for us. I really, I

Brendan Coates: Really don't have one today. On the Friday, I'm just not, I'm not the right person to who's close enough to the sector I spoke to the first time. Yeah.

Veronica Morgan: You don't have to be close to the city. You just have to be close to friends often.

Brendan Coates: Yeah, that's true. That's true. Well, you can probably put me down as having bought a three bedroom house than having two kids and then needing an office and the pandemic. It's not a great situation to be in.

Chris Bates: Well, that's tough down there this year. Isn't it. So how has it all been for you? Do you mean, do you think that ultimately your views of home ownership have changed? And do you think you actually take action on those? Because that's the longest term impacts? I basically say this on an anecdotal side, you know, actively going to do a home upgrade now because of COVID.

Brendan Coates: I think what I've seen is a few people, right? A lot of people are going to work from home a lot more than they used to. So the, the research on on how people are gonna work from home is, is very much, it's not people are going to be old at home and never in the office, if they're going to spend more time in, at home than they used to. And the group for whom that is most clear is people with young kids because trying to manage, you know, I haven't had to travel get on a plane for six months. I've had dinner every night with the kids. You know, we take it in turns to dust chalky pick-ups and drop-offs all that sort of stuff. That's something we're going to continue. And most friends that I speak to in similar situations, that's what they're going to do. So I think what it means is you have more demand for renovations and additions to the housing stock for like the three bedroom house plus the office. It is probably has been a prompt for us to think about it. Again, those stamp duty, the big cost. So, you know, I, if, if the, if Victoria done what new South Wales has done or is thinking of doing, we'd probably wait for that. And then, and then push the button.

Veronica Morgan: It is interesting because we certainly have seen, and we have had the benefit in Sydney of not having had the second lockdown. And absolutely I think the biggest sort of impetus or the biggest group of people looking for a new home, definitely people with small children needing that extra room. It's phenomenal. And almost almost immediate if I don't say immediate, straight out of the Gates, getting a, my bang, those sorts of properties, massive demand increase indefinitely down there and seeing what clients experience I think, you know, as soon as lockdown finished, the Melbourne's just gone crazy cause there's, you know, very low stock, but lots and lots of buyers. So thank you, Brendan. I really enjoy our chat part. I'm still not sold on the nine and a half percent to stay there. My philosophy on these things is, you know, save more and force people to save more.

Chris Bates: I know that's very dictator of me, but I think that that's ultimately going to build a bigger saving pool that when you get greedy governments and who need to save economies you know at times like now we'll, we'll access, you know, I'm sure this 10,000 thing won't be the first time we see that over our working life, you'll see this super fit, you know, the home buyer sort of option, et cetera. So I think just get people to keep on saving and then fix the actual system itself, get lower fees, potentially look at a big national fund that people can join. Other things like that and then potentially doll it back down, well, et cetera. So, but anyway, it's a good chat and I'm sure that the policy makers will just type the easy option anyway, time will tell, but thanks again for the time

Veronica Morgan: With you Brendan, and for anyone who wants to listen to the other episodes, we'd Brendan back in episode 89, we tackled the same big issues, but for the different lens. Cause it was a couple of years ago. And in episode one 24, we actually talked about what's like had happened in the wake of COVID. So that's around unemployment. What will happen to wages, immigration? What does a recession mean for most Australians? And how does that translate into property prices? So that was back on probably seven or eight months ago in episode one 24. So go back and listen to those and sort of see how the situation is unfolding.

Chris Bates: We want to make you a better elephant rider and this week's elephant rider training is

Veronica Morgan: Whoa. You know, Brandon was telling us if he's situation is at home, working at home a lot, presumably his wife is as well, and you've got two small children and a is in a three bedroom house. And so the pressure's on spaces at a premium bulging at the seams. And as when we interviewed and assaults from domain, you know, the search term home office had gone up something like 800% as a result of COVID. So what's pushing up or pushing demand for family homes is very much that absolute, you know, almost medic search for more space and, and a lot of buyers out there. So, you know, it's hard when you need the space and you are in the frame of mind that your home is not right for you. And you've really got to get out there and sell an upgrade, but you are competing with so many more people than potentially would have been competing in any other time.

Veronica Morgan: So I just thought we should just sort of brainstorm a little bit right now and say, okay, calm the farm a little bit. What are some alternatives that you could do or look at if you need some space at home for home office and to the sort of right off the bat from or one right off the bat for me was one of those backyard cabins. I mean, there's places where you could buy them, Nikki, that could be insulated air conditioned fan in there, whatever with power and set it up remotely at the backyard if you've got a big enough block of land. So there's one option you're on your options. Chris,

Chris Bates: I think most people are being a bit innovative over this period to find some spice. I mean, the really simple if you've got a couple of kids is getting noise, canceling headphones and then read them. But yeah, that's $400 well spent, but I think, you know, what do you actually need for a home office? I think, you know, fortunately laptops now can have long charge as well. You know, maybe you can use the garage. I just need people that will get, you know, just doing a home upgrade so you can have a meter square somewhere quiet. You know, I think people you know, not everyone's just going to have to do it right. You know, there's an office can be built anywhere in the house potentially. So be thinking about those things first, rather than just straight to I'm thinking you need a nice office to the side, but those cabin things are good. I mean, the innovation around those is just starting. And I've looked at them in a bit of detail. There's you know, AKI blocks. I won't go backyard rooms, but you know, you talking like 30 grants now, some make council approval, sometimes you don't 

Veronica Morgan: We need the space too in the first place, obviously to be able to do it

Chris Bates: And you're gonna lose that space. You know, it's not putting a pool in it. It's like right over the summer, but you don't jump in the pool for nine months of year. So you've lost that space to using winter, to run around and kick the ball and all that sort of stuff. So yeah, you could have the space, but do you really want to lose it? So

Veronica Morgan: Potentially though that could be a value add let's face it, you know, because this, this isn't going to go away. You know, I think we've had so many episodes where we discussed the work from home movement and even just this hybrid model where people are working for homes maybe three days a week, you know, so therefore this pressure for this space and this dedicated space, isn't going to go away. And you know, if you're not taking away too much from your outdoor space, it could be at, it could be an asset,

Chris Bates: Essentially. I think if your target market is that young family and, you know, professional couples and you're a little bit further away from the city and more likely to be working from home than say access to co-working spaces is very limited around you, which I think will definitely explode over the next, you know, 10 years. You'll be lots of coworking space options. I mean, when I started six years ago, there wasn't many, but every year there's more and more. So I don't know. I think like a granny flat people think, Oh, ultimately I'm going to have this block of land. I'm going to create a second income stream. But what you do do is you discount a buyer who doesn't want the granny fact doesn't want the hassle just doesn't need it. And ultimately they look at your profit and go, well, it's nice. I could get a second income, but I'm just not interested. And so you gotta be always careful adding things and reducing space at your property. So if you've got lots of space here, maybe, but I think just be careful turning your back yard into a part of I'm thinking you, it worth more money.

Veronica Morgan: And there's a couple of other sort of, you know, more practical solutions. You potentially, you've got a space under the stairs. I've seen some soundproofed spaces created under the stairs. So when you do have to go in and make those calls or do those, make those zoom calls and the other thing, the virtual background, cause then you can go in any room of the house and go into your bedroom. If you want to, if you've got a virtual

Chris Bates: Zoom, you know, nobody needs to see exactly what room you're in at the time. Yeah, that's right. Cafes. You know, I think that the work from home thing doesn't have to be at home. The work from anywhere movement for me is much more exciting. Whether that's not just locally, it's globally, the thing that held you back globally was internet and the cost of dots or when you traveled. But if you type that in now, pretty much you can go anywhere in the world, get a really cheap SIM card with plenty of data on it. And so the work from anywhere thing plus 5g I think will be the next decade. So this space, and I think we need to worry about working from anywhere in the world. Please join us for our next episode. We've got a whole episode dedicated to the Perth property market is Perth finally, after about a decade on the nose, he's it on the turn anybody's on the turn, our investors getting involved in that market

Veronica Morgan: And what should they be looking for? What makes Perth different? And is it a bit of the Canary in the coal mine for the whole country's property market? Well, join in and listen, as we interviewed Damien Collins, he's a, a Perth expert and you'll find the insights quite interesting.