Superannuation withdrawals could deepen Aussie house crisis

The two major parties have different plans to solve the Aussie housing crisis. One could end up doing the opposite of what’s intended.

ANALYSIS

At the dawn of the year 2000, Australia’s housing market was as close to what could be considered balanced.

According to figures from PropTrack, a household earning the median national household income could afford to buy a median priced home.

At the top end a household on the equivalent of approximately $200,000 per year in today’s money, could afford a home that reflected where their income sat in relation to the nation more broadly. For example, a household with an income in the 80th percentile (higher than 80 per cent of households), could afford to buy a home in the 80th percentile by value.

Since then, housing has gone from at times a relatively benign issue, to now becoming one of the main issues that could play an instrumental role in deciding the outcome of the next election.

Labor’s proposed solution is a significant increase in social and affordable housing construction through the Housing Australia Future Fund and a broader increase in funding. The Albanese government along with national cabinet also set a goal to build 1.2 million homes over the next five years, which experts increasingly very much doubt will end up eventuating given the backdrop of a struggling construction sector and significantly higher than pre-Covid interest rates.

The federal Coalition’s proposed solution is allowing first home buyers to withdraw up to a maximum $50,000 (up to 40 per cent of the total balance up to that amount) from their superannuation to put toward a home deposit.

Prime Minister Anthony Albanese’s Labor government is building more affordable housing. Picture: NCA NewsWire / John Appleyard

While Peter Dutton’s opposition Coalition is proposing people access their superannuation to buy their first property. Picture: NCA NewsWire / John Appleyard

This presents a rather unique situation for the electorate. Unlike many new policies which are relative unknowns in terms of their actual real-world impact versus government or Treasury modelling, we have already had something of a mini-preview on what the impact of the Coalition’s policy could be on the housing market.

During the pandemic the Morrison government authorised the public to be able to withdraw up to $20,000 each in total from their superannuation if they were in dire need of the additional funds in two rounds worth of potential withdrawals.

People weren’t ostensibly supposed to use these funds to fund home deposits, but data from research firm Digital Finance Analytics (DFA) shows that these withdrawals were a major factor in enabling the purchases of a 22 per cent of first home buyers in the six months to the end of January 2021.

Coincidentally, this snapshot from DFA coincides perfectly with the absolute peak in first homebuyer finance commitments in the ABS housing finance data. Between February 2020 (the last month of data not impacted by the pandemic) and January 2021, the number of new first homebuyer mortgages rose by 69.1 per cent.

This marked the strongest growth and highest number of new first homebuyer mortgages since late 2008, when the Rudd government’s doubling of the first homebuyer grant on existing homes to $14,000 and tripling of the grant on new homes to $21,000 sent first homebuyer demand rocketing almost instantly.

Markets and perspective

Over the six months of data assessed by DFA, almost 19,000 first homebuyer purchases were supported to some degree by one or more of the purchasing parties withdrawing cash from their super.

In a nation where the population recently ticked over 27 million people, this may not sound like much, but in the context of the property market it is actually highly significant.

Despite Australia having more than an estimated 11.5 million residential dwellings, in the last 12 months only 501,000 have been sold. This represents a housing turnover rate in aggregate of approximately 4.3 per cent, based on estimates of the current number of residential dwellings.

Adding an extra 19,000 potential purchasers to the mix represents 7.6 per cent of all housing turnover in aggregate over a six-month period.

The surge in first homebuyer activity from mid-2020 to early 2021, helped put a floor under housing prices at a time when uncertainty about the impact of the pandemic was near its peak. Between July 2020 and January 2021, dwelling prices nationally rose by 5.5 per cent. This would be the beginning of one of the largest and most swift rises in home prices in Australian history.

The grey zone

There are several major differences between the Coalition’s proposed scheme and the ad hoc mechanism that thousands of first home buyers cobbled together in the early years of the pandemic.

On paper during the pandemic, superannuation was never meant to be withdrawn for a home deposit, it was supposed to be for individuals in severe difficulty. So relative to the Coalition’s proposal, the scope of what we saw during 2020 and 2021, was limited by the desire of much of the public to do the right thing.

Meanwhile, the Coalition’s plan as it currently stands would provide a far greater pool of prospective first home buyers with the ability to access their super in order to buy a home.

But this comes with potential drawbacks. Basic supply and demand teaches us that adding demand without adding additional supply on the other side of the ledger puts upward pressure on prices.

Pieces of the puzzle

With the nation’s rental vacancy rate plumbing generational lows and the working age population growth rate at the highest level since records began in the late 1970s, the rental crisis is unfortunately unlikely to be over any time soon.

For thousands of renters buying a home is a goal to escape the uncertainty and challenges of the rental crisis. By providing access to retirement savings to purchase a home, we could see a surge in first homebuyer activity that is even greater than the increase facilitated by super withdrawals during the pandemic.

For over 60 years, federal governments have pursued various demand side policies for first homes buyers, which the federal Productivity Commission has concluded has failed to achieve their stated goals and may have instead benefited property sellers. There is an argument to be made that the Coalition’s policy could end up doing the same.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator