Inevitably, the broadening of superannuation early release rules as part of the COVID-19 response has led us back to debating whether we should extend the existing First Home Super Saver scheme.
...which relies on voluntary contributions – to allow young Australians to access their compulsory super savings to buy their first home.
On the face of it, you can see why this idea appeals – there’s a reason it comes back around so often. And full disclosure, I have a horse in this race, as a still young-ish Australian who has yet to make it onto the property ladder.
The pitch? Trading what seems like a small amount of retirement savings for the security of getting onto the property ladder and not having to pay for housing in retirement. It’s your own money after all, and young Australians in major property markets are finding it harder than ever to scrape together the deposit for a first home.
When you look more closely, though, it just doesn’t stack up.
First, there’s the mountain of research that demonstrates that giving first home buyers more money simply increases house prices. We’ve seen this in action with first home buyers’ grants. So topping up your deposit out of super savings is going to put you…more or less back where you started, only with a bigger loan that takes longer to pay off. And a lower super balance.
Artificially inflating prices could even lead to scenarios where individuals end up in a worse place than they started. Say you’ve taken money from your super and purchased property with a small deposit. If property values decline (because remember, prices aren’t guaranteed to rise), you end up in negative equity – you owe more than your home is worth. All it takes is one financial shock, like a job loss or a relationship breakdown that means you can no longer maintain your home. You’re forced to sell, and potentially you’re still in debt and with a much lower super balance.
So, we’ve established you’re not guaranteed to be in a better position for having used your super to buy a home.
Accessing your super is also not necessarily going to make it easier to get a home loan, because SG does not represent actual savings. Using money you’ve been forced to save doesn’t make you a better risk for a bank to take on, and it doesn’t show that you can make repayments, so your income and savings behaviour will still be a key factor in whether you can afford to buy.
And finally, you’re entrenching inequality. Those who are in the fortunate position to be able to afford a home without dipping into their super savings will probably be those on higher incomes with higher super balances. We’re likely to see a widening of the retirement savings gap as we encourage people to take money from their superannuation at the exact time they should be accumulating savings to take advantage of the benefits of long-term investing.
At the end of the day, this is just another attempt to use the superannuation system to solve an unrelated problem – in this case, housing affordability and rental security. Australia has some of the least affordable property markets in the world (a fact I know all too well as a Sydney resident), and it is not the role of the superannuation system to fix that.
We know that home ownership is currently the key to a comfortable retirement – but why do we need to accept that as the only option, and doom those who don’t own their own home to worse retirement outcomes?
Other housing market policies that would make home ownership more affordable, and renting less precarious, should also be considered – for their own merits as much as for their impact on retirement savings.
As noted by the Grattan Institute, one of the best ways to break the link between home ownership and retirement outcomes is to directly address the cost of renting by providing a higher level of rent assistance.
This would help not just those who may never have bought a home, but those who have left the housing market for other reasons, such as older people who have separated from partners and cannot afford to get back on the property ladder – the kind of situation that leads to a disproportionate number of older women living homeless or in poverty.
Changing the long-term promise of superannuation by allowing savings to be withdrawn almost as they are accumulated would undermine the purpose and the promise of the system. Not only would it set up the super system to fail, but it would also undermine retirement savings for Australian workers.