House prices will fall 10pc before the PM’s super plan sends them up
Not many first home buyers have $125,000 in their superannuation account to withdraw the maximum $50,000 for an individual, or $100,000 for a couple.
The average first home buyer age is about 36.
The average super balance for 35-39-year-olds was more than $83,000 for males and more than $66,000 for females in 2019, according to the Australian Taxation Office.
As a rough rule of thumb, first home buyers could typically access about $30,000 from super to beef up their deposit, or $60,000 for a couple.
Allowing for leverage, home buyers with healthy incomes could perhaps spend an extra $150,000 for an individual and $300,000 for a couple on a property.
Borrowers with more modest incomes would be able to secure their deposit earlier to bring forward their first purchase by several years.
The requirement to return the withdrawn amount to the super fund (plus any proportionate capital gain) when the property is sold will encourage people to remain in their first home for longer. It could restrain prices when participants purchase their next principal place of residence.
Labor’s policy of 40 per cent government equity for 10,000 first home buyers earning up to $90,000 would also push up prices, though the tighter means test means the price inflation would probably be less than the Coalition’s plan.
Taxpayers would share in the risk of negative equity or default on Labor’s policy, while home buyers would wear the downside risks in the government’s proposal.
What’s missing is a policy to increase supply
What is missing from the government’s housing policy is a serious plan to increase the supply of homes to improve affordability.
If the government is going to resort to another demand-side housing policy, it should first put more pressure on the states to increase housing supply by streamlining zoning, planning and development approvals.
The parliamentary inquiry into housing by Liberal MP Jason Falinksi in March recommended that using super as collateral for home purchases “should depend on also implementing policies to increase the supply of housing”.
“Otherwise, an increase in households’ ability to borrow would likely increase property prices.”
The Commonwealth could offer financial incentives to states to significantly increase the supply of medium- and high-density residences in desirable locations with good access to employment and public transport. Or states could be punished for failing to meet supply targets.
Labor’s housing policy includes the establishment of a National Housing Supply and Affordability Council, including targets for land supply in consultation with the states and more transparency around the release of land.
Both sides have dodged tackling other distortions – the exemption of the principal place of residence from the pension asset test, which encourages overinvestment in expensive homes, discounted capital gains and state stamp duties.
Nevertheless, people should be circumspect about the $3.4 trillion superannuation industry’s claim that diverting super to buy a home will undermine retirement.
Home ownership is important to secure financial wellbeing, according to the government’s retirement income review conducted by former Treasury official Mike Callaghan in 2020.
Home owner retirees avoid the relatively large expense of rent and have the potential to tap into the equity of their home to supplement retirement income.
Many retirees still rely on pension
Contrary to the industry’s spin, increasing super does very little to reduce pressure on the aged pension. Super tax breaks for the wealthy outweigh the minimal government savings on the pension.
Seven in 10 retirees are now on the pension.
Hence, prioritising superannuation for retirement ahead of home ownership and other working-life expenses may be putting the cart before the horse.
Liberal MP Tim Wilson, who is battling to retain his once-safe Liberal seat of Goldstein in Victoria, is the chief advocate behind the “Home first, super second” policy.
The Callaghan review did not propose using super for housing. But it did point to a range of life expenses such as housing, healthcare and education that may be more important for people to spend on immediately, rather than waiting for decades until retirement.
Moreover, the ongoing rise in compulsory superannuation from 9 per cent to 12 per cent will be 80 per cent funded from people’s wages, according to the Reserve Bank of Australia and Grattan Institute.
As people are forced to stash more away in super, there is a case for flexibility in using their savings, but only after supply and other housing distortions are fixed.