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Tapping super for first homes: Could it work?

April 22, 2015
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​​​​​​​Our experts consider the latest push for early access to savings

Should first-home buyers be allowed early access to their compulsory superannuation savings for a housing deposit?

The idea has been mooted since Australia's superannuation guarantee system was introduced in 1992. Last year, it was Independent senator Nick Xenophon pressing the case. Now, federal Treasurer Joe Hockey is calling for a "conversation".

John Piggott, a scientia professor at UNSW Business School and director of the ARC Centre of Excellence in Population Ageing Research (CEPAR), is a leading expert on the challenges posed by demographic change. He is not in favour of interfering with super's explicit purpose of generating an income through retirement.​​

"The current minimum superannuation guarantee contribution is at the low end of what would be required to achieve adequate consumption smoothing between working life and retirement," Piggott says.

"And to divert those resources into home purchase would compromise this outcome."

But Australia's housing market is running hot, with capital cities either "seriously" or "severely" unaffordable. Most excluded are first-home buyers, who are generally young people.

At around 12%, first-home buyers now make up the smallest proportion of the housing market on record since the Australian Bureau of Statistics began collecting figures in 1991. 

So it's hardly surprising a recent poll from Essential Media Communications found young people hoping to get into the market are the group most in favour of being able to use some part of their super for a housing deposit – 49% of adults under the age of 24 support it, and only 35% oppose it.  

Ralph Stevens, a senior research fellow with CEPAR, also sees merit in the idea, depending on how it is implemented. He questions the one-size-fits-all approach of the present system. 

"We know that people don't save, or are inclined to spend it right now. But also people are different. If you own a home, then you need to save less. If you have financial wealth outside super, you need less in your account when you retire. So there is not just one formula," Stevens says.

"If you look at your life cycle, when is it not optimal to save for retirement? That's [the case] for young people, because when you are young your liquidity is constrained, and if you're saving you should save for housing rather than for retirement. Later, when you've bought your home, then it's time to look at retirement."

 

'Allowing superannuation to be used for purchasing a family home might, in the long run, have a positive influence on the superannuation savings pool' ​

– RUIZHU (YOLANDA) LI​

Commitment device

Stevens recently co-supervised a thesis by commerce student Ruizhu (Yolanda) Li, which used a sample of 143 UNSW students in a lab experiment to investigate their perceived value of using super for purchasing a family home, and also the type of possible benefit they valued most. About half of the participants already had a super account.

While Li acknowledges her subject pool of volunteering university students may produce biased results compared with the general population, it nonetheless provides an interesting snapshot into the thoughts of a group of young people.

Overall, the subjects placed the highest value on being able to reduce an outstanding mortgage. This was followed by the benefit of being able to purchase a family home. The least value was placed on being able to purchase a more expensive home.

The results also shed light on the broader issue of a general lack of engagement with super across all age groups.

Li's participants were more inclined to increase their level of voluntary contribution if they could use their super to purchase a family home, and in this context they valued the commitment device inherent in super savings.

It leads Li to offer that "allowing superannuation to be used for purchasing a family home might, in the long run, have a positive influence on the superannuation savings pool".

And Stevens suggests this willingness among young people to save more into super if it were available for housing could help fuel a policy change to increase the super guarantee to "make it more adequate", something that has proven politically difficult.

 

Trade-offs​

Former Labor prime minister Paul Keating cites a speech he made at the Australian Graduate School of Management​ at UNSW in mid-1991 as a turning point in the forward design of Australia's superannuation system.

Keating had just resigned as federal treasurer and he argued for "a mandatory 12 percentage point charge to be paid by employers as part of productivity sharing under the [then] Accord wage restraint model".

The scheme was legislated six months later – soon after Keating became PM – and incrementally reached its initial target of 9% of an employee's salary by 2002. The gradual increase to 12% was supposed to come next.

But super is stalled at 9.5%. Last year, there had been a five-year timeframe to reach 12% but the newly elected Abbott government extended it to eight-years, and then further stretched it out to 12 years.

Why has it been so difficult to reach 12%? According to Piggott, there are trade-offs.

"It's not a completely straightforward thing but it's probably the case that to a very large extent, in the medium term, increases in the employer contribution rate come out of wages," he says.

"So overall labour compensation probably doesn't change very much, but there is a reallocation of that overall compensation between take-home pay – the wage you receive – and the superannuation contribution that's made on your behalf.

"That means that people who are on low wages face liquidity constraints – young, poor families, for example – and you have to be cautious about the extent to which you further constrain their liquidity by increasing the superannuation guarantee. That doesn't mean it shouldn't be increased. I'm just pointing out that there are tensions in increasing it."

 

'I think it would be injudicious at the moment to do anything that was going to add on the demand side when the market is as hot as it is. It doesn’t need any more stimulus' ​

– nigel stapledon

Affordability​

Hockey says he is "concerned about rising house prices and the accessibility to homes and home ownership for younger Australians". But most economists claim that allowing them to use their super would simply push up prices, making housing even more unaffordable.

Nigel Stapledon​, the Andrew Roberts fellow in real estate economics at the Centre for Applied Economic Research at UNSW Business School, has a nuanced view. He concedes it's "logical" that any measure that brings more people into the market is going to "shift the demand curve" and "put some upward pressure on house prices".

But Stapledon says it's fair to understand why the younger-age cohorts aren't in the owner-occupied market. Factors could include that people are marrying later, which is when they tend to switch from renting to buying, and that students have HECS loans to pay off, which limits their capacity to take on additional debt. 

"[And] you can think of superannuation as something that's also constrained them because it's forcing them to save in non-housing assets," he says.

"This cohort is going to enter retirement with more financial assets (super) than their parent's generation but a partial offset is that more of them will be in the rental market."

Stapledon confesses he accessed his super to get into the Sydney housing market 30 years ago and "it was the right thing for me in the long term, so I can't say it's a silly idea".

But the key issue is addressing constraints on housing supply and generating downward pressure on prices.

"Governments should be making sure they're ahead of the game in terms of new land release on the fringe [of cities], the conversion of residential in inner areas to higher-density use, and investing in infrastructure – roads and rail," Stapledon says.

"I think it would be injudicious at the moment to do anything that was going to add on the demand side when the market is as hot as it is. It doesn't need any more stimulus.

 "[And] I worry about the Reserve Bank cutting interest rates. Trying to make housing save the rest of the economy is not sustainable. The economy grows and then people buy houses; you don't have buying houses [as] the driver of the economy.

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