Super should not fund housing
The Coalition's proposed policy looks to allow first home buyers to draw from their super.
There are countless proposals to “fix” housing in Australia. The latest off the block - the Coalition have re-proposed a policy from the 2022 election. This policy allows people to access 40% of their super balance, up to $50,000.
Variations of these housing policies are a Band-Aid over a gunshot wound. Common sense suggests this “affordability policy” is going to push house prices in exactly the wrong direction as more demand enters the market. This is a policy that supports some home buyers at a single point in time, pushing the can down the road to the next generation – perhaps they will be allowed to pull $100,000 from super. Or $200,000.
My main concern here is that the policy is contradictory to the purpose of superannuation. The purpose is singular – it is to provide for retirement. Now it is being repurposed as a vehicle for getting into the housing market.
How this plays out doesn’t take a crystal ball. We can simply look at the Morrison Government’s early release stimulus package. There were no strict conditions of release and $38 billion was drained from superannuation accounts.
Those that did access their superannuation reduced their balances by 51%. 75% withdrew the maximum amount available. Gambling was one of the largest expenditures for the funds.
The Grattan Institute has found that the average superannuation balance among the poorest 20 per cent of renting households of 25- to 34-year-olds is $5,000. The top 20 per cent of renters have more than $70,000 in super. This policy does little to help most first homebuyers who need a hand.
The early release stimulus package serves as a lesson for how these funds will likely be used if there’s no means testing. Although it must be used to purchase a home not everyone will use this as a leg up to get into the housing market. Some will use it as a jumping off point to add another $250,000 to their property purchase. Others will divert funds already saved for housing to other expenditures. This is not a policy that helps those that need the leg-up, and makes it more difficult by increasing demand in the market.
Deloitte found that a 30-year-old couple partaking in this policy is expected to receive $3,270 more a year from the aged pension resulting in a $88,400 lifetime hit to the budget. Morningstar models show that a couple retiring at 65 would have $635,800 less in super. Both big hits – and costing over $700,000 for two individuals and the taxpayer in exchange for $50,000 in withdrawals from a couple. To top it off, this policy aimed at housing affordability provides no real improvement to housing affordability for first home buyers.
I recently purchased my first home with my husband. Although we had no help from the bank of Mum and Dad – there are caveats to this. We are a dual income household on good salaries. We have no dependents or caring responsibilities. Our student loans were paid off. We were able to opt for Land Tax instead of Stamp Duty. Purchasing a home these days in Australia requires all the stars to perfectly align.
I could have accessed super through First Home Super Savers Scheme (FHSSS). I chose not to because my super is invested in the same way as most Australians including those in the MySuper option. It is tilted towards long-term assets that exchange higher short-term price fluctuations for higher long-term returns. I knew if I relied on super and the market dropped the money may not be there when I found a home. Even if my super could cover the withdrawal, I could have been selling at depressed prices which would further hurt my retirement outcomes.
There are three lenses to viewing property in Australia. Unfortunately, many Australians now view property as purely an asset. Opposing this is viewing it as a home. It is somewhere to live and somewhere to build your community. It is somewhere to ground your family and have emotional security. By almost every objective standard and measure, the home that I purchased would be considered an overvalued asset. When I was purchasing my home, rental yields were not a consideration. The attractiveness of the area to potential tenants was not a consideration. Over-capitalising on the needed renovations was not a consideration. We view this home as a place to live and a place to build a life.
There is a second lens to viewing property in Australia and that is in the lens of financial security. This is looking at property and the need for it in retirement. ASFA’s retirement standards suggests a lump sum amount that you need to achieve to have a comfortable retirement. All of the figures that are given by ASFA assume that you own your own home. It is logical that this makes sense especially for older people in retirement. Putting aside that it reduces the risk of having to move properties whilst struggling with potential immobility in old age, we can speak about the financial security aspect to this. For many of us, housing is our largest cost. Paying off your mortgage removes for many people around 30% of their post-tax costs from their budget. This makes an enormous difference to the quality of life that you can lead.
When advocates of super for housing policies defend pulling out funds to assist with purchasing a home this is often the lens they use. They justify it by stressing that a house will contribute to financial security and retirement. Using this logic allows a leap where pulling funds out of super is contributing to retirement. I don’t buy this logic and instead go back to one of my original points -that those that can afford to contribute to their deposit through super are those that need it the least. Pulling funds out of super will result in more funds towards a primary place of residence that can’t be accessed unless the house is sold.
One of the proposed additions to the Coalition’s policy is recontributing the funds that were taken out of super back into super when the house is sold. This is indicative that this policy was created with the intention that the property would be sold to repurchase another home. Financial security and viewing a house as an investment are not mutually exclusive, but the outcome of the policy is not to secure a home, it is to help investors with larger superannuation balances climb another rung on the property ladder.
Superannuation’s purpose is clear. It is to provide for retirement. If we allow it to be pillaged for home ownership why not support withdrawals for other purposes to build financial security? Pay off student loans, personal loans or credit card debts. Chuck it in the offset. Superannuation either needs to be safeguarded or it might as well be made voluntary.
This is not the first and no doubt this will not be the last policy that proposes accessing superannuation for purposes other than retirement. It is always done under the guise of empowering Australians. In my opinion there is no better way to empower Australians than ensuring a secure retirement.
Perhaps a larger question to consider is the purpose of housing. Is the purpose to provide financial security by allowing people to pay off a mortgage by the time they retire? Is it to strengthen attachment to a community? To provide stability for a family? Or is it a way to build wealth for homeowners and leave the next generation in the dust? If it is the latter, then this is a policy worth considering. If it is the former, this does nothing to help.
Parts of this article originally appeared in the Sydney Morning Herald.
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