Proposed change could make home ownership harder to attain

It’s the new plan to make it easier for Australians to buy a home. But there are some serious risks that come with it.

A long-awaited parliamentary report published last week recommended that superannuation funds be accepted as security for home loans.

It is a controversial idea that splits thinking, with some claiming it will only make attaining the ‘Australian Dream’ even more difficult for some.

The parliamentary standing committee on tax and revenue, which conducted this inquiry, is stacked with Coalition members, chaired by member for Mackellar Jason Falinski. The Labor members of the committee dissented (officially disagreed) to the report.

What is the proposed change?

Among other policy proposals, the report suggests that an individual’s superannuation account could be used as security in a mortgage for their first home purchase.

Put another way, this change would provide a funding boost to that individual’s favourability to home loan lenders and therefore unlock greater access to financing. At face value, greater access to financing, and in turn, housing, is a bonus.

However, many warn that the long-term consequences of such a shift would be more damaging. Criticisms fall largely into two categories – inflation in housing prices, and risk to individual super.

Increase in housing prices

By pumping money into the housing market that had previously been earmarked for retirement, economist Saul Eslake told news.com.au that house prices will increase.

“In a supply-constrained market, which I accept that we have, there is almost 60 years of historical evidence that demonstrates that anything that allows people to pay more for housing than they otherwise would results in more expensive housing,” he said.

Furthermore, Mr Eslake said that this would increase inequality across age and wealth groups.

“Home ownership is unequally distributed, not only across wealth cohorts or income cohorts, but also significantly across age groups. So it would not only increase inequality in the conventional sense of the term – that is, between rich and poor – but also in an intergenerational sense between the old and the young.”

The housing market has grown at a record pace in the last two years. Picture: Julian Andrews/News Corp Australia

Felicity Emmett, senior economist at ANZ, said that this policy offering had to be paired with measures to increase supply.

“On its own, it’s going to add to the problems with housing affordability if we go down that path, but in a broad suite of measures that incorporate other measures that address the issues of supply, then it could be quite helpful,” she said.

This is similar to the defence of the proposal which the standing committee gives.

“The committee recognises that allowing first homebuyers to access or borrow against part of their super to purchase a home would, in the absence of increased housing supply, likely increase demand and lead to higher property prices,” the report reads.

In early 2021, AustralianSuper chairman Don Russell warned of price increases to The Sydney Morning Herald.

“If you start giving early access to first homebuyers, then it’s really destructive because in the first instance what we’re doing is providing the wherewithal for people to further bid up prices, but you’re also undermining the wealth generating capacity of superannuation,” he said.

Danger to individual superannuation

If implemented, this change would mean that some may lose their super as well as their house in the case of failing to meet mortgage repayments. While obviously a critical loss for some, mortgage defaults are relatively rare in Australia.

Dr Martin Fahy, CEO of the Association of Superannuation Funds of Australia (ASFA) said this proposal could endanger retirement plans.

“The proposal for superannuation balances to be used as security for home lending is against the longstanding policy of ASFA that superannuation should be used for retirement purposes, and does not address the underlying causes of housing affordability.

“In effect, the proposal raises the spectre of first homebuyers losing not just their house but also their super, in one fell swoop.

Meanwhile, Mr Eslake said that if the measures were put into practice, mortgage lenders may be hesitant to accept superannuation as collateral.

“Banks and other lenders might be a bit reticent about accepting super as collateral because in effect that would mean that in the event of a default, and admittedly that’s unlikely, the banks might find themselves not only taking someone’s house, but also their retirement income savings.

“While they would be legally entitled to do that, that would be a bad look.”