Spending super on housing could ruin your retirement. Here’s a better idea

Should I raid my super to buy a home? It’s the question more young Australians are asking as the great Australian dream of homeownership that their parents and grandparents enjoyed moves further out of reach.

At an age when they’d traditionally be looking to buy, many in their 20s and 30s are disillusioned by unattainable property prices, high interest rates, stagnating wage growth and continuing cost of living pressures that dampen their homeownership goals.

Treating super as a piggy bank risks undermining the very reason our superannuation system was established.Credit: AFR

With politicians of both sides of the aisle searching for viable solutions, the debate continues over whether it’s wise to allow young Australians to access superannuation to buy their first home.

Generally, securing a home loan means providing a 20 per cent deposit, which can equate to upwards of $200,000 in major metropolitan areas. That’s a significant amount to save at a time of life when you may be juggling student debt, rent, childcare and early career responsibilities.

The First Home Super Saver Scheme (FHSSS) allows voluntary contributions, capped at $15,000 a year up to a total of $50,000, to be withdrawn for a home deposit. You must apply to the ATO to request the release of your savings. But in the current property market, that can be a drop in the ocean.

This week, both major parties announced new policies to help younger people buy homes, with Labor wanting drop deposits for mortgages to buy a home to 5 per cent, and the Coalition wanting to make mortgage repayments tax deductable.

However, the Coalition has also proposed a system that would allow a draw of 40 per cent (up to $50,000) for a home deposit that has to be repaid if the house is sold.

With the average super balance for 20-year-olds sitting at $5500, and $59,000 for 30-year-olds, this is simply not enough super to make a meaningful dent in a property deposit without compromising future retirement income.

There are overseas options worth considering. Singapore’s Central Provident Fund allows their citizens to use retirement savings for housing, contributing to that country’s 90 per cent homeownership rate. New Zealand’s KiwiSaver scheme and Canada’s Home Buyers’ Plan also allow early withdrawals. All these nations grapple with concerns about long-term retirement needs.

While the positives of dipping into super to own a home include shielding people from rent volatility and building equity, the risks are significant. The main downside is eroding the magic of compound growth that is the basis of our superannuation system.

Demand could surge and further drive up prices.

With Australia’s pension system under strain already, increasing future reliance on government support for an ageing population is a real concern.

World Bank research outlines the international experience and lessons learnt from allowing early access to pension savings. On the plus side, it significantly boosted homeownership rates but did find a link to exacerbating housing affordability issues.

The other key issue to consider is that if super could be more freely accessed to purchase property, demand could surge and further drive up prices (this was the unintended impact of previous governments’ first home buyers grants in the early 2000s).

The real concern is that lower-income Australians could fall further behind because those with higher super balances would benefit more in gaining entry to the property market. A range of more sustainable ways to help young Australians onto the property ladder include:

• Wipe HECS debt or help them pay it down more quickly with lower interest loans so young Australians have more disposable income to save for a first home.
• Expand government grants and subsidies for first home buyers (although of course this could drive up prices and further skew Australians’ asset allocation to property).
• Implement shared equity models allowing partial government or institutional ownership of a home.
• Encourage rent-to-own schemes, without the full burden of an upfront deposit.
• Reform tax policies that disproportionately benefit investors over owner-occupiers, such as negative gearing and capital gains tax concessions.

These approaches may not be silver bullets, but they avoid the long-term pitfalls of undermining the superannuation system. There is probably no one policy that will fix a complex housing problem that has developed over the past few decades.

While housing affordability is a serious issue, treating super as a piggy bank risks undermining the very reason our superannuation system was established – to ensure dignity and quality of life in retirement.

The challenge is to strike a balance: supporting the current and future generations of young Australians to achieve homeownership without jeopardising their future retirement.

Grace Bacon is director of RSM Financial Services Australia (AFSL 238 282), advising clients on wealth management, retirement planning and succession planning.

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