At last we have a nation changing housing policy

An Aerial view of the housing market in Western Sydney. Picture: Gayle Gerard / NCA NewsWire

After just over a month of campaigning and countless promises by each party, finally in the last week of the campaign, a promise has emerged, which if implemented, will dramatically improve the long term future of our nation.

I am of course referring to the overdue proposal to allow our young people to access their superannuation to help gain a deposit on a dwelling. It is sad that the ALP didn’t support it. I have advocated this policy in the past but the housing boom made it seem unattainable. Now the largest housing lender, the Commonwealth Bank, forecasts a 10 per cent housing price fall so the timing is better.

At the moment, parents and grandparents who need their savings for their own retirement despair that their children and grandchildren will be forced into a life of paying escalating rents. Many are mortgaging their houses to help their children and grandchildren when they can’t afford the commitment.

As I explain below, rents are set to explode further, partly due to deliberate policies of the NSW and Victorian Premiers, which is contributing to despair among the upcoming generation.

Justifiably an increasing number of younger people see superannuation as an absurd waste of money that not only reduces their ability to meet rapidly rising day-to-day costs, but destines them to possible poverty in retirement because superannuation reduces their ability to buy a dwelling.

Many choose to work in situations where they can gain remuneration without superannuation deductions.

The 2020 report on retirement and incomes by a remarkable group of people commissioned by Treasury isolated home ownership, not superannuation, as the key to a comfortable retirement. But the report came out as house prices were taking off so this part of the report was never actioned.

I doubt whether the superannuation policy will enable a Coalition victory because they are so far behind. But it will be a linchpin in their campaigns for future elections and unless the ALP’s plan to have part-owned government housing takes off, the situation will get progressively worse and the base Coalition policy will become more and more essential to restoring the relevance of superannuation to the younger generation.

Let’s summarise how the policy will work for a first homebuyer couple purchasing a $800,000 dwelling that requires a $160,000, or 20 per cent deposit. They need to save five per cent or $40,000 ($20,000 each) to get in the game. By aged 30 a big proportion of the population has saved $50,000 in superannuation and the amounts will rise if superannuation is given relevancy to the younger generation. With a theoretical combined $100,000 in superannuation, the couple can access $40,000 of their superannuation money for their first home. That means they will have a total of $80,000 or 10 per cent deposit. The additional $80,000 can be borrowed under the government’s New Home Guarantee system.

Michael Callaghan, Deborah Ralston and Carolyn Kay published a retirement incomes report in 2020 confirming what most retirees already knew that, rather than superannuation, the home is the most important component of voluntary retirement savings.

“Homeowners have lower housing costs and an asset that can be drawn on in retirement. If the decline in home ownership among younger people is sustained into retirement, there will be an increasing number of retirees who rent”, the report stated

The risk in the Coalition policy is that dwelling prices will rise even further. The government hopes that its retriemnt superannuation policy will encourage older Australians to downsize and help free up family dwellings for the next generation. In addition, the new bank lending rules and higher interest rates may clamp prices at lower levels.

But state governments will be important and the nation can’t afford the sort of policies being embraced by NSW Premier Dominic Perrottet. He is deliberately stopping apartment dwellings in Sydney by demanding that one in every four apartments does not have a carparking space knowing that he is plummeting the value of the non-garage apartment so making large new developments uneconomic. In Victoria, Premier Daniel Andrews made the burdens and risks for landlords so high that he forced many out of renting so helping to sky rocket rents.

Australia can thank former Treasurer and Prime Minister Paul Keating for the magnificent superannuation movement that he established. And its true the Liberals incorrectly opposed it. Keating superannuation was the perfect policy for the a nation with high-home ownership. But a series of blunders by the Reserve Bank and others have changed the game.

Today’s young Australians face an entirely different situation to previous generations. The superannuation model has to be amended to avoid irrelevance. By using superannuation rather than the ALP’s government ownership housing policy, longer term the superannuation movement will be greatly enhanced. When first-time buyers inevitably sell their house, the money and the capital gains on the deposit return to their superannuation account. So we have a double boost to final retirement – stronger superannuation plus home ownership.

My hope is that if the ALP wins the 2022 election (that’s not a forecast), by the time 2025 arrives the correctness of the Coalition policy will be so evident that the ALP will divorce itself from the short term thinking among industry funds and embrace the policy, perhaps with some improvements.