Experts slam Coalition’s super-housing fix

By Leith van Onselen

Various experts have emerged to slam the Coalition’s proposal to allow first home buyers (FHBs) to access their superannuation to purchase a home. From The Canberra Times:

Paul Keating has dramatically added his voice to those of industry and finance experts warning the Turnbull government against allowing superannuation savings to be used for house purchases, branding the idea scandalous, ideological and designed to “pull the backside out” of super.

Mr Keating has told Fairfax Media it is a triple threat because it would drive up prices, would permanently gut retirement nest eggs for the under 40s and would compromise the optimal investment profiles  of the super funds themselves…

Financial systems inquiry head David Murray has also expressed concerns over the suggestion, even as it appears to be gaining supporters on the crossbench…

“There are many issues in the tax and superannuation systems, but to allow savings to be withdrawn to be used for other investments really defeats the purpose,” he said.

He agreed that the proposal would likely add to demand and therefore to higher prices, and would present problems because funds would need to maintain greater levels of liquidity to facilitate withdrawals, thus earning them lower returns…

Financial Services Council chief executive Sally Loane urged the government to think again.

“Allowing young Australians to use super for housing would undermine efforts of the RBA and APRA [the Australian Prudential Regulation Authority] to cool the housing market,” she said on Sunday.

Meanwhile, Rice Warner Consultants have produced modelling showing that extracting money from superannuation to facilitate a property purchase will cost the individual later life as well as put a greater burden on the Aged Pension and the Budget in the future:

The Financial System Inquiry (2014)… recommended the government adopt the objective of superannuation as providing income in retirement to substitute or supplement the Age Pension. Last November, the Financial Services Minister Kelly O’ Dwyer accepted the FSI recommendation without modification and it will become law as soon as a Senate committee has finished discussing the finer details of how this simple phrase should be worded.

Despite this clear objective, the Assistant Treasurer Michael Sukkar has ignored his own policy and this week suggested that he is reviewing whether young people could use their superannuation benefit as a deposit to buy a home. Perhaps he will regret this when he realises what such an asinine policy would cost future governments in increased Age Pension costs.

This policy would create higher activity and would push up the price of housing as more people compete for the same amount of housing stock. It would benefit real estate agents and mortgage brokers who would get higher commission without needing to do any extra work – one of the consequences of distorting capital markets. State governments would also benefit from the higher stamp duties on inflated house prices. Again, rewarding an inefficient tax…

We have modelled the impact on a member aged 35 on average earnings taking $100,000 out of their super account to use as a housing deposit. Our young member now loses the power of compound interest and, assuming they only receive SG contributions and don’t top up their super later in life, they will draw an extra $92,000 (present value) in Age Pension payments in their retirement years.

So, the Federal Government allows someone to draw $100,000 and then pays them an extra welfare benefit of $92,000 later in life!

Some have suggested the super fund would simply lend the money to the member and it would be repaid. This would reduce the pain, though the member would still lose out on years of fund earnings – and investment returns make up a much larger component of a retirement benefit than contributions made throughout a career. The fund administrators would also need to keep records of this new activity which will increase fees for all members.

Clearly, there are far cheaper ways of getting people into home ownership, by looking at addressing the supply and demand for housing in our capital cities. Using super as a piecemeal solution is not the way to fix the housing problem.

Rice Warner’s modelling follows previous PwC anaysis, which estimated that allowing FHBs to access their superannuation for housing could blow a $31 billion hole in the Federal Budget by 2049-50.

It’s also worth remembering that Canada’s Garth Turner, who oversaw the introduction of a housing-super system in Canada in the 1990s, has admitted that it was a massive mistake – placing further upward pressure on Canadian house prices and putting at risk retirement savings – and has explicitly cautioned Australian policy makers against such a move.

Australia needs genuine policies to tackle Australia’s affordability woes that seek to reduce demand via tax reforms, cutting immigration and restricting foreign buyers, as well as freeing-up land supply and planning.

What we definitely don’t need is more demand-side stimulus that would make the affordability situation even worse, cost the Budget a fortune, and place Australia’s retirement system at risk.

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    • Newsflash: They already did sell their grandmothers (for virgins, no less)… they’re in the process of selling our grandmothers now…


      ‘Compassionate grounds’ requests to tap super have jumped by over 50% in latest study; with problems due to mortgage stress leading the way. Most are surprised to learn that they need to have received income support from Centrelink for at least 26 weeks to be eligible and the max amount to tap is $10,000.

      Severe Financial Hardship, if agreed to by the trustees, may allow larger amounts to be withdrawn. Either way, it is very hard to access super before normal retirement. It’s been this way for many years and the logic was to ensure monies were available in the later years. Either that logic was flawed or the need to prop up house prices is the most important objective. Appears to be the latter and proof that there is no rational government policy; they have been completely captured and are subservient to corporate interests.

      • Jumping jack flash

        2008 was the big reveal, when it was proved without a doubt that the governments of the developed world were completely beholden to the banks.

        I really doubt things have changed much since then.
        In fact there is no question that governments everywhere have slipped a little deeper into the pockets of the private banks.

  1. We can whinge about this all we like but it’s going to be inevitable this will be made law very shortly with the type of clowns the Aus voter brought in to run the circuis: of, foe and by idiots.

    Do people still think everything is about to crash? Government meddling arriving yet again with impeccable timing shows that 2008 is happening all over again with the same “successful” outcome.

    • Jumping jack flash

      It will never be allowed to crash. By hook or by crook.

      When the effects of using super to buy houses diminishes, which they will, they’ll think of something else even more absurd. And then after that, it will be something bordering on the fantastic…

  2. reusachtigeMEMBER

    Meh. No one cares about studies and sh1t. This IS going to happen and us investors won’t just double down on buying property, we will infinity down because the boom will be super huge!!! I can’t wait, it’s pretty well a done deal as this is the sort of thing us great Aussies create! It is proper innovation… it’s us!!!!

    • What I also love about this plan, is that it provides another welcome tax loophole for housing.

      Make concessional super contributions and save on your marginal tax rate. Then use those funds to buy property.

      It doesn’t matter how the government could make up for the tax it loses from this …. get it from the poor, the sick, or the unemployed, or whatever. Bludgers the lot of them.

      This current mob is so awesome. Can’t wait to read the May budget. Should be riveting and packed full of policies to make us handsome investors even more handsomely rich.

    • Jumping jack flash

      I know!
      Why not do away with super altogether?
      It is a useless idea and it is going to be spent on houses at some point anyway.

      So when you start your first job, buy a house. The biggest and baddest house you like. Or build one, it doesn’t matter really.
      Then simply use the amount that would have been used for super contributions to give directly to the bank to pay off your mortgage.
      The sweetener would be that there would not be any deposit required, or some kind of first buyers’ subsidy. I’m sure it has been done before.

      Its win/win. when you retire in 40 years’ time your house is repaid through regular contributions over the 40 years (+ any difference) and – and here’s the genius behind the plan – the house would have increased in value, by at the very least, around 500%. More if its in a capital city.

      Then, cash in the house to a foreigner, downsize, and then live high on the hog with your millions.


  3. If it is coupled with including the home in the pension assets test and a bolstered reverse mortgage scheme then it might not be that expensive.

    • If the family home is expected to assist with funding retirement e.g. with a reverse mortgage, then it is reasonable to expect that home owners may be able to use some money put aside for super to pay for the asset. However it would be dangerous to allow the use of super for a deposit, especially if targeted at FHBs.

      A sensible scheme allowing the use of super for paying for a home might look something like:

      – Up to X% (perhaps 20-30%) of super can be directed into paying down a mortgage for a PPOR (only).
      – Cannot be used to fund the initial deposit, only for principal repayment once loan exists.
      – Only future super payments can be used (i.e. no bulk transfer from existing super account).
      – Repayments from super cannot be relied on in banks servicing calculators.
      – If PPOR sold then equity portion paid for by super is transferred back to super fund unless another PPOR is purchased within 12 months.
      – For use alongside a P&I loan only (not allowed to be IO, with the super contributions being the only repayments of principal).

  4. Jumping jack flash

    “Allowing young Australians to use super for housing would undermine efforts of the RBA and APRA [the Australian Prudential Regulation Authority] to cool the housing market”

    News to me, but by “cool” I assume they really mean lowering the frenetic rate of debt transactions, not making houses cheaper, because that would be bad.

    Just let them them use their super already!

    Who cares that it is a band-aid solution that will only be effective in the short term?
    And what about those poor sods that don’t have super, or don’t have enough super for a deposit?

    • Those guys are losers. Feck ’em.

      In 5-7 years time however, we will need to add another stone to the mighty housing pyramid. Then we’ll change the law to bring some of the losers into the “winners” tent. Those that don’t have the price for admission at that later time will be the new losers – feck ’em!

      The good thing about losers is that they are being born every day! Every baby born is likely to be a median earner unable to afford a median house. Feck ’em all!

  5. DodgydamoMEMBER

    I can’t recall the blue team ever taking on board advice from Mr Keating, so it probably just helps to firm up support for the idea in coalition ranks. In my opinion the end of the bubble will be near when young FHBs are be allowed to access ‘their money’ held in super and not before.
    Its a bad idea, and will further inflate prices and worsen affordability for FHB’s… but that’s why they will do it!

  6. For the LNP and their RE backers there is no downside to floating ideas, no matter how illogical. that inflate property prices. If the idea goes ahead, win. If the idea gets canned, win – as in the interim the RE cheer-squad gets a chance to get excited and inflation happens anyway. I expect MSM to promote the super into property idea or else the consumer training program called The Block’ would come to an end.

  7. “Allowing young Australians to use super for housing would undermine efforts of the RBA and APRA to cool the housing market,”
    SOME EFFORTS, they just can’t stop working on cooling the housing market. FFS

  8. The tower is leaning.

    They need to prop up the foundation.

    LNP: Let’s pump billions of super-money into the ground to shore it up! That’ll buy us some time. Probably til the next election. Then we can blame Labor!

  9. I think it’s a great idea. What better way to build a stable retirement than to get a stable roof over your head early on? If the super fund gets to keep some equity in the home then it also prevents that investment from being frittered away. So really it’s just another form of SMSF, except much more useful. if this idea encourages young people to work productively and invest in their own future that’s a good thing for society.

    I suspect I won’t be able to benefit from this, but hope they push it through for the benefit of everyone else in my age group.

    • So the Super fund would hold the first mortgage and the Bank the second? I can’t see that working.

  10. Not sure about all the fuss over using super to help FHBs into the property market. According to ASFA, mean super balances (2013-14) for 25-29 age bracket was 16.4K, rising to 93.2K for the 45-49 age cohort.
    This is nowhere near enough for a deposit for the median house in Sydney/Melb. Given the shift to part-time work and growing job insecurity, lower investment returns over the forseeable future etc I can’t see this having a big impact.