Joe Hockey recently reintroduced the discussion into the public arena of allowing people access their super in order to buy their first home. This is not a new idea and has been raised by various politicians and lobby groups since superannuation was legislated in 1993.
As recent as last year, SA senator, Nick Xenophon, attempted to introduce legislative changes to allow super money to be used as a deposit on a first home. In 2008 the Labor government responded to public interest in this idea at and introduced First Home Saver Accounts, which offer many of the same attractive tax features as superannuation. The scheme was subsequently axed in the 2014-15 federal budget.
So why would we potentially look at introducing a scheme like this? Housing affordability in Australia is at an all-time low, with the median price to median income ratio rising from 3.5 times in the late 90s to over 7 times now. In other words, housing has more than doubled in relation to our incomes. This has made it increasingly harder for a first home buyer to save up for a deposit and access the housing market. With that said, surely if we allowed these people to access their superannuation, a pile of money they won’t likely see until they are over 60, it would be a good idea. Not really. In fact, it’s a very bad idea that will achieve the exact opposite. Economics 101 tells us if we have a fixed supply (houses) and increase demand (by giving people more money) it will increase price. Think of it this way – you and everyone else at an auction have an extra $30,000 to spend, which is money you have accessed from your super. What is likely to happen? Everyone bids $30,000 higher than they otherwise would have, the vendor pockets this increase and your super balance has a gaping hole in it. The same logic can be said for first home buyer schemes, which only cause house prices to rise.
A similar system exists in Canada, called ‘Home Buyers’ Plan’, where first home buyers can borrow $25,000 from their retirement savings. The funds must be paid back after 15 years. The Canada Revenue Agency has found that since the scheme began in 1992, almost half (47%) of the borrowers who raided their RRSPs haven’t paid anything back. It has been estimated that $30 billion has been removed from Canada’s retirement savings and ploughed into unproductive property, which has seen prices skyrocket. When compounded over a lifetime of work, this makes a significant difference to those people’s final retirement balances.
Regardless of how a similar system could be designed in Australia, the economic argument does not stack up.