With home ownership further out of reach than ever for younger Australians, some are pondering whether their locked-away retirement funds would be better off used now, to buy a house.
Jordan Davies is one young person who views home ownership as out of reach, despite the 28-year-old feeling that he is relatively well-off, with a decent job and stable salary.
“It’s still difficult to obtain finance in the amount that is needed to purchase a property,” he told ABC News.
“The prices of property are so out of reach currently, for a single income earner.
“If you’re working hard in this country, you should be able to live the Australian dream.“
Yet Mr Davies is on the fence about a policy being put forward by the Coalition, ahead of the federal election on May 3.
The scheme proposes that Australians should be allowed to take up to $50,000, or 40 per cent, of their superannuation fund to buy their first home.
Currently, superannuation funds are largely locked away from people, until they reach retirement age in their 60s and can start using them. The idea behind this is to make Australia less reliant on the pension.
Under the Liberal policy, the $50,000 would need to be returned to the superannuation account when the house that was purchased using it is sold.
Economists mixed on superannuation for housing
Some economists who study the housing market don’t think withdrawing superannuation for purchasing a property is the best use of those funds.
“I think there are two major concerns,” Professor Rachel ViforJ from Curtin University said.
Professor Rachel Viforj is a prominent housing economist and a Professor of Economics at Curtin University. (ABC News: Mark Leonardi)
Her first concern is that the scheme will be “inflationary”, in that it puts extra cash into the hands of prospective buyers, and therefore just helps them buy property at a higher price.
“That will fuel demand for housing, and that will then push house prices up,” she said.
Other housing policies being put forward by the Labor party have faced the same criticism, including the expansion of an existing scheme that lets people buy their first home with only 5 per cent deposit.
Professor ViforJ said withdrawing superannuation to buy a house could also exacerbate inequality.
People have different superannuation balances depending on how long they’ve been in the workforce and the salary they have been earning.
Loading…
“It’s the higher income earners who have more super to draw from,”
she said.
“Lower income earners usually have very little super in their accounts.
“So the scheme will likely help the higher income earners more than the lower income earners.”
Half of people in their 30s who don’t own a home yet have less than $30,000 in their superannuation account, modelling from the Association of Superannuation Funds showed.
Modelling by economist Saul Eslake found the average 25-34 year old had just over $20,000 in their super balance, of which around $8,000 would be available to be withdrawn under a scheme where people could pull out up to 40 per cent of their balances for the purchase of a house.
Withdrawing super now affects retirement funds
There are also concerns about the long term impact to the retirement balances of young people who take out super now for a home deposit.
Modelling by the Super Members Council showed a couple who withdraws $55,000 combined super at age 30 would lower their superannuation balance at retirement by $149,000.
The Council also provided modelling that indicated the scheme would push up house prices overall by increasing demand.
Other criticisms include that the superannuation could be worth more long-term if it stayed in a retirement fund, where it would likely increase in value depending how the money is invested.
That’s a concern Jordan Davies has as he ponders the scheme.
“I wouldn’t take $50,000 out of my super — I don’t even know if I have $50,000 in my super. In fact, I don’t think I do yet,” he said.
“I think that it would drain my my super to such low amounts I would consider myself to be depriving my future self of an allowance that could avoid me relying on welfare payments.“
Jordan Davies sees home ownership as out of reach despite viewing himself as relatively well-off. (ABC News: Simon Tucci)
Super access a good idea if ‘done well’
Yet others say superannuation for housing isn’t a misguided concept.
“Super for housing is a good idea,” former Reserve Bank economist Peter Tulip said.
“It can be done well, or it can be done badly.“
Economist Peter Tulip is in favour for super being used for housing if it is used as collateral for a loan, rather than being withdrawn. (ABC News: Dan Irvine)
Mr Tulip thinks a solution to superannuation balances being run down would be to use the cash in retirement funds as collateral.
That would be similar to the so-called “Bank of Mum and Dad’, where parents act as guarantor with their existing assets, to bring down the required deposit people need to get a home loan without lenders’ mortgage insurance.
“Not everyone has wealthy parents that can do that: they could use their superannuation balance instead,” Mr Tulip said.
Unlike Professor VirforJ , he argued that the super policy won’t perpetuate inequality as it will only likely be used by those who need it.
“Within the group of home buyers … this policy will mainly help those buyers that have difficulty getting a deposit together.
“So people that have generous parents or have substantial savings on their own will not use this policy much — it doesn’t do much for them, they can get the deposit anyway.
“This will really help people that have difficulty getting that deposit together, and they’re at the lower end of home buyers.“
Mr Tulip also believes the super for housing scheme should be expanded beyond first home buyers and be available to anyone wishing to purchase a home.
“There are a lot of people that want to buy a home that have substantial superannuation.
“The same reasons that you use it to apply for first home owners apply to other buyers.”
Other experts who say the idea has benefits include independent economist Cameron Murray.
He argued that superannuation funds were already being used to invest in the property market, through self-managed funds that allowed properties to be part of a retirement portfolio.
Mr Murray also contended that somebody is better off at retirement to own a home and access the pension, than being a renter with a bigger super fund.
“The best asset to own when you retire is not shares [in your superannuation portfolio] but a house to live in,” he told ABC News.
“People are paying into superannuation when they’re young and poor so they can have more money when they’re old and rich.“
Mr Murray generally argues that superannuation should be wound back as an Australian policy.
LoadingLoading…
Having trouble seeing this form? Try this link.
