Why using super to buy property is a dumb idea

Last week, Liberal MP Tim Wilson came under fire after it was revealed that he and his partner owned five residential properties and stand to gain financially from Wilson’s proposal to allow first home buyers (FHBs) to use their superannuation savings to purchase a home.

Wilson hit back at his critics over the weekend:

“They are deluded in thinking their intimidatory tactics will stop us shining bright lights in dark places, or that we will back down from fighting for home ownership by getting life’s financial priorities right: home first, super second.”

Regular readers will know that I am an outspoken critic of Australia’s compulsory superannuation system, despite this site offering the MB Super Fund and, hence, benefitting financially from policies that force Australians to put money into super.

My skepticism is centered around three main concerns:

  • Compulsory superannuation reduces take-home wages;
  • Superannuation concessions are poorly targeted toward higher income earners. Therefore, superannuation’s cost to the federal budget is greater than future savings from lower Aged Pension outlays; and
  • The inequitable distribution of superannuation concessions increases inequality.

That said, I also do not support allowing FHBs to raid their superannuation savings to purchase a home. While this policy may benefit some individual FHBs, it would push up demand and be inflationary to property prices overall, thereby eroding affordability.

Thus, Tim Wilson’s policy would quickly be capitalised into higher home prices, with the end result being no affordability gain and lower retirement savings. This explains why Tim Wilson and his partner, who own five properties, stand to gain large wealth increases if his policy goes ahead.

New research from Choice further highlights why Tim Wilson’s policy would not help would-be FHBs.

Low-income renters and superannuation

Young low-income renters have minimal superannuation savings.

As shown in the above chart, young lower income renters have negligible superannuation savings. Thus, Tim Wilson’s policy could actually impede this cohort’s ability to buy a home, according to Kate Colvin, spokesperson for national housing campaign Everybody’s Home:

“Paradoxically, allowing people to use their super for housing would increase the purchasing power of people who have a high income, and so have a relatively high super balance, exactly the group who are already most able to buy.

“Giving this group access to faster capital will push up prices across the board, making it harder for the people who were already struggling to get a foothold in the market.”

The last thing this country needs is to pour superannuation fuel on the housing bonfire, in the process making affordability worse and reducing retirement outcomes.

Let’s instead target the three fundamental flaws in superannuation listed above by: 1) abandoning the scheduled rise in the superannuation guarantee to 12%; and 2) reforming the concession system to make it far more progressive.

Unconventional Economist
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  1. Perhaps if investors didn’t stock up and have 5 houses, with their 20% bidding advantage, as they can finance bigger loans with the tax deductible interest, then FHBs could buy houses, without parent (parent investor) deposits.
    If half the housing stock is held by investors, then that is priced out from FHBs.

  2. Am I reading it right? Looking at that Super balance graph, it looks to me that the average punter, even in the pretty blue income quintile is gonig to have less than $350K in superannuation to retire on. Even if that gets 10% returns how is anyone supposed to live pension free on $35K, especially if they dont own their home outright.

    • This is why ethical people keep on objecting to super. Most people will never accumulate more than $200,000 or so, and will basically be on the age pension with a bit of cash in the bank despite compulsory superannuation. But the people who benefit really benefit a lot, and they would never be eligible for the age pension anyway.

      • Pension ratingsMEMBER

        70% of people are still gonna be on the pension in retirement, though sitting in a 1.5million house.

        The problem with the pension is that the asset test values a house as 200k Less assets. Where can you get a house for 200K lately?. Bad luck renter retirees with the tiny rental allowance.

        • Don’t worry, renter pensioner losers with no family who have not taken suiside option will be taken care of with a special jab /vaxhex all of their own called euthanasia. No one wants to be a burden especially financial…
          Media, movie, medical & government conditioning in full swing right now. /sarc

        • kannigetMEMBER

          My father lives on a Farm, for pension purposes 10 years ago the government assessed its worth > $900K, even though multiple bank and real estate valuations didnt reach $300K.

          He cant give it to any of the children as they deem that avoiding the assets test.

          He cant sell it to any of us as banks wont loan the $900K and if we buy it at market rates they again deem it an attempt to avoid the assets test.

          If he sells it, it has to be on the open market, meaning he gets what the market wants, but even if we as children compete in this market it is still deemed as an attempt to avoid the assets test.

          So, The family would lose the family farm, those family members that live on the farm would have to find something else and for the money he could get for it he would not be able to buy a reasonable property nearby.

          The only sane part of it is they dont count the house and 5 acres its on in the valuation. In their wisdom for some reason they valued the house and 5 acres way too high in comparison to the rest of the property ,so his last asset valuation means he gets a half pension.

          Another crazy thing, when Mum died they evaluated the funeral insurance as Income and docked his pension. So not only did he lose his life partner he also had his pension docked in sympathy.

    • Looks about right to me, from a sample size of 1 for my own personal circumstance.
      And yes, compulsory super isn’t likely to allow many people to fund any decent retirement for any reasonable length of time.

      • kannigetMEMBER

        Yep, so after putting in 10% of wages for a majority of their working life and compound interest taking effect they still have bugger all to show for it as well….

  3. Ritualised Forms

    I would like to propose we lobby Prime Minister Morrison for a Cabinet reshuffle to create…

    The Hon Timothy Wilson – Minister for Dumb Ideas

  4. It’s all but inevitable. This latest shot in the arm from HomeBuilder has all but run its course. They’ll finish building it out in 12 months or so at which point we’ll be facing a building collapse. Cue DepositMaker to keep the party going a bit longer.

    • Strange EconomicsMEMBER

      Perfect for an election policy stocking filler – “Everyone can use 50,000 of their super for a home deposit or their mortgate. The LNP, getting people into house mortgages. ”
      Sounds just like a 50K present to everyone in the ads.
      One in the eye to Labor Party. !

  5. Wilson doesn’t really have a policy, it’s just an attack on superfunds due to the union connection using the most emotive asset there is.

    As the chart shows, as a typical Liberal he’s lying to poor people to convince them he’s working in their interests.

  6. I’d like to see SMSF’s banned from investing in residential property.

    FHB can’t compete with a 40 year old’s twenty years of enforced saving.

    Let them invest in commercial or industrial property but not places that could be homes.

  7. Related negativity on super via proxy issues through media, whether ideological or financial, are disingenuous, while globally Australia is recognised as having one of the top 5 sustainable retirement income systems in the world (versus those nations being bankrupted by pension payouts and/or buying off pensioners); so what is this all about?

    We know the IPA and Wilson et al. are opposed due to libertarian socio-economic ideology masquerading as ‘freedom and liberty’; though periods of grace on super contributions in the past were not criticised?

    However, for MB, Grattan Institute, ANU’s Crawford School etc. the campaign against super is framed in the present and past using pre-existing policy and tax settings that are the focus of most negativity e.g. tax breaks for wealthy, precluding wage increases etc..

    Not only are these assumptions posited, as permanent and supposedly unchangeable, but super issues are framed so narrowly the underlying demographic issues are ignored; numbers of pensioners are increasing in real terms, hence, dependency ratios are declining, due to the number of PAYE taxpayers in the permanent population workforce, declining like elsewhere.

    In future the choices will be more stark, increase taxes and/or decrease services/pensions, and/or include primary residence in the means and assets test to restrict pensions access, supported by NOM net financial contributor ‘churn over’; political suicide with the current Australian voter mindset.