Superannuation for Housing l Mercer Australia

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Super for home buying: welcome entry or noisy policy
Calendar26 April 2017

The housing crisis in Australia is fast growing, especially amongst first home buyers who are finding it difficult to enter the market. Should first home buyers be allowed to access their super to fund their deposit?

Housing affordability in Australia is a growing concern amongst all groups.  In January this year, Demographia, a global company based in the US, released its annual report into housing affordability which ranked Sydney as the second most expensive city for housing in the world, with a median house price just over $1M. An ongoing topic of debate within Parliament and Financial Services in Australia is allowing young first home buyers to access their superannuation balance to pay for their home deposit. All eyes are now on how the Federal Government will tackle this issue in its May budget.

While speaking to Sky News last month, the Assistant Treasurer Michael Sukkar refused to rule out the move to allow young first home buyers to access their superannuation balances to pay for their first home deposit.

Groups such as the Real Estate Institute of Australia and the Committee for Economic Development in Australia support the initiative with the President of the Real Estate Institute of Australia, Neville Sanders claiming, ‘It needs to be recognised that superannuation and home ownership are both components of a retiree’s nest egg and not competing products’. Neville further claims, ‘Providing first home buyers with access to superannuation will help reverse the trend of falling home ownership and address the looming large policy problem of large numbers of long-term renters approaching retirement.’

However, in a recent news story on ABC, experts in Australia opposed the move, claiming it would further increase the housing affordability gap. Independent Economist Carol Austin believes, ”Making it easier for people to access additional finances for housing, will increase demand, putting upper pressure on prices.”

In other countries like Canada, Singapore and New Zealand, the government tackles the housing affordability issues in a similar way, but with slight differences to the suggested move here in Australia.

“In Singapore, the total contribution rate put into the savings by the employer and employee is 37% of earnings”, adds Senior Partner of Mercer, David Knox. In Canada, first home buyers can access up to $25,000 of their retirement savings to buy a property, but must then repay that amount in 15 years.

Mercer Australia suggests that allowing individuals to access the super to buy property isn’t the silver bullet to the housing affordability issue that people are looking for. Leaving aside the detrimental effect that diverting savings would have on long-term compound interest outcomes, the proposition seems to be one where the numbers just don’t stack up. For example, Mercer’s research suggests that the average person in Australia under the age of 30, has a maximum superannuation balance of $50,000. If a 20% deposit is required to buy a property in one of the big cities, this equates to at least $120,000, leaving a shortfall of $70,000 needed. A more critical analysis would look at the past use of first-home owner grants as an example of where additional buying power has only fuelled a higher price that people are prepared to pay for property.

Former Prime Minister Paul Keating has been a vocal critic of the move, declaring it would rob young Australians of their retirement savings later in life. This is supported by research by the Grattan Institute which claims that $50,000 forgone in super earlier in life, would leave retires worse off by $120,000 after 30 years. The same $50,000 invested in housing is estimated to increase by $50,000 over 30 years, leaving retires with a net loss of $70,000.  

Experts further suggest that tapping into super balances for housing might set an unwelcome precedent for the future. Senior Partner David Knox comments, “Whenever you take one part of money out of super for housing, then we are going to say, Why can’t I take some money out for medical costs or my children’s education?”

Housing affordability is an issue of national concern. However, if we take a step back to the early nineties when Australia’s superannuation system was introduced, the objectives were to provide an adequate level of retirement income; relieve pressure on the Age Pension; and increase national savings, creating a pool of patient capital to be invested as decided by fiduciary trustees. With these objectives in mind, it’s hard to reason why any politician or government would support the move to access super to buy a first home.

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