00:00This is a story about robbing Peter to pay Paul.
00:03When it comes to buying a first house, people around the world are looking for some way to pay uncomfortably
00:09high prices.
00:10Earlier this year, White House Economic Council Director Kevin Hassett suggested Americans might dip into their 401k retirement funds.
00:17But does finding new ways to borrow really help first-time homeowners?
00:21Or does it just drive prices even higher?
00:24We went to two countries with very different models to find out.
00:30Jordan Davies and Jeff Chee don't know each other.
00:33They've never met.
00:34But they have one thing in common.
00:36Both just bought their very first house.
00:39Davies, a lawyer in Melbourne.
00:41Chee, a sales worker in Singapore.
00:43And they followed very different paths to achieve their goal.
00:46It's really hard when you see people who are doctors who worked so hard, studied for 10 years,
00:53and trying to think about, well, I don't have a home yet and I don't yet have a family and
01:02putting off key decisions or key stages like having families because it's so unaffordable to get a home in Australia,
01:11in the big cities in Australia.
01:12This is a public housing from the HTB, our government.
01:18I bought it back in 2021 before it was built.
01:23At the point of time where we purchased this flat, we don't have to come up with a huge upfront
01:28of cash or money.
01:30All we need to get is probably 5% of the down payment to secure the unit.
01:37And then five years later, where we collect our key, that's where we pay the remaining lump sum of 15%,
01:46amounting to 20% down payment for us.
01:49I would say it's not difficult to buy a first home in Singapore.
01:54But Singapore might be the outlier.
01:57In the United States, the median age of first home buyers has risen from 33 in 2020 to 40 in
02:052025.
02:06And while the OECD's home price to income ratio has edged lower since its 2022 peak, it remains near record
02:13highs.
02:14Housing affordability is a key issue.
02:17Every American who wants to own a home will be able to afford one.
02:21So what can be done?
02:22In 2021, President Trump has proposed extending the terms of mortgages from 30 to 50 years, lowering the monthly payments,
02:29but making homeowners pay more interest over a longer time.
02:33Another proposal from the White House to let buyers dip into their retirement funds is similar to a model found
02:38elsewhere around the world, including in Australia.
02:42Australia is among the countries where housing affordability is front and center, particularly in its biggest cities.
02:48Saul Eslake is the principal of Corinna Economic Advisory and was previously chief economist at ANZ and Bank of America
02:57in Australia.
02:58The ratio of house prices across Australia to household disposable income per person aged 15 and over is now over
03:0913 times.
03:10You know, the median house price in Australia is a little over a million Australian dollars or about 700,000
03:18US dollars.
03:19That is more than nine times average weekly earnings.
03:24You go back 30 years and house prices in Australia were about four times average weekly earnings.
03:32So housing affordability has deteriorated sharply, especially for younger Australians.
03:41Australia has a mandatory 12 percent contribution to its 401k equivalent and now lets people take up to $50,000
03:48from voluntary contributions made on top of that to put towards a home.
03:57At the last two elections, the right of center parties in Australia, the Liberal and National parties, proposed to allow
04:06Australians to take up to 40 percent of their superannuation savings out to use in order to assist with the
04:14purchase of a home.
04:15So my work showed, I think, fairly clearly that that scheme would have added upward pressure to housing prices, wouldn't
04:25have helped those in the traditional first home buyer demographic because they don't actually have a lot of superannuation saved
04:34up to that point,
04:35and would have lowered the amount of income they had in retirement, even after taking account of whatever savings in
04:43housing costs that might accrue to them by not having to rent through their working lives or in retirement.
04:50Now, as it happened, of course, the right of center parties lost the last two elections, so they weren't in
04:56a position to implement that policy.
04:58But Eslake says for all the policies governments throw at the problem, he's skeptical that they really want to fix
05:05it.
05:05That Australian psyche has shifted from viewing housing as something that meets basic human needs for shelter and security and
05:15connection with the communities in which they live towards regarding housing as a vehicle for accumulating wealth.
05:22And a much higher proportion, close to two thirds of Australian household wealth is tied up in residential real estate
05:31than in almost any other country in the world.
05:34So I found myself saying in recent years that the reason why Australia's housing affordability problem will probably never be
05:43solved by any deliberate actions by government
05:46is because politicians know that a majority of Australians don't actually want the problem to be solved by housing becoming
05:54cheaper.
05:57It's a different story in Singapore, where it appears to be a genuine priority to make sure that everyone can
06:03own their own home.
06:05So the way Singapore thinks about it is, it is the place to live.
06:09Sumit Agarwal is the professor of economics and real estate at the National University of Singapore.
06:15He's not convinced that allowing access to retirement funds is such a bad idea.
06:20So I think there are pros and cons of this.
06:23I mean, if you allow people to dip into their 401k, to get into housing, not necessarily public housing in
06:29the U.S., but any kind of housing.
06:31On one hand, this could create inflation because now there is more money chasing same amount of housing.
06:38Prices will naturally go up.
06:41The other aspect is we will provide democratized housing.
06:44There are certain people, they just don't have the right amount of money for down payment, and they are, as
06:50a result, renting and wasting their money.
06:53This will allow them to get into housing, consume housing, but also invest in the housing that will allow them
06:59to build long-term wealth.
07:02Singapore's model is vastly different.
07:04It requires employers and employees to make mandatory contributions to what it calls the Central Provident Fund.
07:11That retirement fund, they allow you to cash out some of it, especially if you're buying housing.
07:17So you can do it two ways.
07:19One is to cash out to make a down payment for your house, also for your making your monthly housing
07:25payments.
07:25Around 75 percent of Singapore's population lives in public housing.
07:30So typically what happens is, in most countries, when they decide to provide public housing, they segment it to lower
07:38-income or minority neighborhoods.
07:41So those neighborhoods then become also very crime-prone or risk-prone.
07:47In Singapore, they make public housing for all around everybody.
07:52Public housing is all over the island, from the best neighborhoods to the fringe neighborhoods on the island.
07:59Having public housing supply at the level of Singapore might not be replicable in other countries.
08:05But while Singapore makes it easier for people to get into their first home, it also makes it more difficult
08:11to buy a second.
08:12In Singapore, there's something called an ABSD, or Additional Buyer Stamp Duty.
08:17What that means is that if you're buying a second house in Singapore, you have to pay an additional stamp,
08:25a buyer stamp duty of 30 percent.
08:27Okay, that's up front.
08:29So this discourages homeowners to become investors or buy second or third properties.
08:36Okay, this democratizes housing and availability and also depresses pricing or doesn't grow house prices.
08:43Clearly, this is a great idea that, look, we don't want to discourage you from buying and investing in housing
08:51as an asset class.
08:53But we have to realize that housing is special.
08:56It's not just an investment, it's a consumption good.
09:00If tapping into pools of capital like retirement funds just raises prices, and taking real steps to lower those prices
09:07hurts those who already own their homes,
09:10is there any hope of solving the housing affordability crisis?
09:14The only way in which housing is going to get cheaper, I suspect, is if there is some kind of
09:19global financial upheaval that impacts the supply of credit,
09:24that in turn reduces people's capacity to pay what they currently pay for housing, and hence it becomes cheaper.
09:31But as I say, if that were to happen, there'd be enormous political pressure in this country on governments to
09:36do things to stop it happening.
09:37So what does Jordan Davies think?
09:40He spent years saving for his first home in Melbourne.
09:44Now that he owns one, has his view changed?
09:47I think I bought into this property with a view that eventually property prices in Australia will need to equalize
09:57in one way or another.
09:58I bought this as a place that I knew that I'd be happy just living in at the cost that
10:03it costs, you know, relative to what I might need to pay to rent in Melbourne.
10:09So I didn't go into the purchase thinking, I want this asset to, you know, significantly rise in value.
10:17I wouldn't like to see it plummet, that's for sure.
10:20So I'm of the same mindset as I was before.
10:23And what about in Singapore, where the system favors buying one, but only one home?
10:30I think that there are two different groups of people in Singapore, in my point of view.
10:37I belong to the one that I want to buy a few more properties, be it residential or commercial, to
10:46build a portfolio.
10:46As governments around the world take on the housing affordability crisis, the question may not be which levers to pull,
10:53but who is the Peter we're borrowing from to pay off which Paul?
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