Why the Coalition’s super-for-housing plan is a terrible idea

For several years now, the Coalition has insisted that if we want more Australians to own their own homes, we should be allowing people to access and draw on their superannuation. That is, of course, when the bank of mum and dad – the Coalition’s preferred housing solution – isn’t on hand to bequeath the standard 20 per cent required for a deposit.

The idea works in very basic theory. You take a large sum of money being invested in one area of the economy and invest it into another. Under its proposed policy from the 2022 election, Australians could withdraw up to $50,000 from their superannuation to put towards a deposit.

The Coalition is again spruiking their plan to let young people use super to buy housing. Let me list the (many) reasons this is a terrible idea.Credit: Dionne Gain

Given the relative safety of housing as a long-term investment and the fact that we all need somewhere to live, it’s easy to see how they initially reached this logic.

But for as long as they’ve been insisting the plan is a good one, countless studies and mountains of research from housing experts and economists both in Australia and around the world have shown it not to be.

The most obvious problems with allowing tens of thousands of people to access roughly the same amount of money at the same time are that it would inflate an already record-high market, increase competition, and, in turn, increase household debt as people take on higher mortgages. And that’s assuming they can find a property within their price range.

According to Domain’s 2024 First Home Buyer Report, an entry-price home in Melbourne costs $678,000. In Sydney, it jumps to $927,250. Looking outside the two major cities reduces the cost to $545,000.

Super is there to provide income after we stop working. It was not designed to act as an investment slush fund and create wealth for multiple generations.

To be lucky enough to secure any of these options, a 20 per cent deposit will set you back between $109,000 and $185,000. Considering Australians are already among the highest carriers of household debt in the world, it’s hard to see how blowing that out even further is sound economic policy.

Now, in the latest instalment of the terrible policy idea that simply refuses to die saga, the Coalition’s homeownership spokesman, Andrew Bragg, has declared that not allowing people to access their super fund to buy a home is sowing the seeds of a generational war, with Gen Z and Millennials on one side and Baby Boomers on the other.

This war, Bragg says, is not so much about the haves and the have-nots, but about a loophole that already allows one cohort of Australians to use their superannuation to invest in the property market while others can’t: self-managed super.

According to Australian Taxation Office figures from December 2023, almost $49 billion of residential real estate was owned by self-managed super funds. With the mean house price in Australia costing $933,800 during the same time, that equates to roughly 52,000 properties.

NSW senator Andrew Bragg.Credit: Alex Ellinghausen

Though more than a quarter of our total national retirement savings (just under $870 billion) is kept in self-managed funds, it’s an option disproportionately used by older Australians.

According to the ATO, only 0.5 per cent of Australians aged under 25 have a self-managed fund. The figure only climbs to 2.4 per cent of people aged between 25 and 34. For people in their 50s, the number rockets to 22.4 per cent, and increases again to 24.3 per cent once people reach their 60s.

It’s here Bragg sees injustice. If older Australians can take advantage of the self-managed super fund loophole, why can’t everyone, right?

“It’s ridiculous that people are denied their biggest and their best opportunity of getting into a house absent the bank of mum and dad, and we don’t want to have a country where people are relying on intergenerational wealth,” Bragg said.

This statement is important for two key words: intergenerational wealth.

What Bragg and his colleagues miss in suggesting opening up all super funds to create a more equal playing field is an essential point in this debate, and that is the role superannuation was designed to play in our lives.

The most basic and simple explanation of super is that it’s there to provide income after we stop working. It ensures we’re comfortable and have the level of care we need. It was not designed to act as an investment slush fund and create wealth for multiple generations.

The other major flaw in this plan, though honestly, there are too many to write about, is that it ignores the fact that many Gen Z and Millennial Australians already fall well behind on how much super they should have.

The gap between estimates of what a person’s balance should be and what it actually is has been growing recently, particularly after COVID-19 when many young people took advantage of the Coalition (then in government) allowing temporary access and the withdrawal of up to $20,000 from super.

Assuming a person had enough in their super to withdraw $50,000, to do so if an account is already anemic only creates another headache, whereby the housing market is inflated and a person either won’t be able to retire or will have to lean on the government pension, which already costs the economy tens of billions of dollars a year – a problem that super was, in part, designed to address.

If the Coalition is serious about creating opportunities for people to get into the housing market, a more obvious option would be to close the self-managed super loophole and see everyone on a level playing field. You could argue there are 52,000 pretty good reasons to do so.

Victoria Devine is an award-winning retired financial adviser, best-selling author and host of Australia’s No.1 finance podcast, She’s on the Money. Victoria is also the founder and director of Zella Money.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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