The proposal announced by the Coalition today to bust open super for first home buyers housing deposits would add tens of thousands of dollars to housing prices and would undermine the retirement savings of all Australians.
Any additional money Australians can take out of super via the scheme announced today would almost immediately be gobbled up through housing price surges as analysis shows it could hike the nation’s five major capital city median property prices by between 8-16%,
The proposal is not what super was set up to do and would torpedo super fund investment returns for all Australians – forcing funds to carry more cash and be less able to invest for the long term – which has been the key in delivering members’ bigger nest eggs.
Lower super fund investment returns would also put more pressure on the aged pension – a cost worn by future taxpayers.
ISA modelling shows allowing couples to take just $40,000 from super would send property prices skyrocketing in all state capitals, but the impact would be most severe in Sydney, where the median property price could lift a staggering $134,000. (see table 1 below)
Many potential buyers would soon be locked out of the supercharged market, others would be lumped with far bigger mortgages.
But the scheme is a real winner for the banks who would reap the windfall of the inflated mortgages.
A chorus of economists, Prime Ministers – including John Howard just weeks ago – Coalition ministers both past and present, the RBA and housing experts have all cautioned against schemes like this due to its inflationary impacts and its potential to undermine investment returns for millions of Australians.
Industry Super Australia Chief Executive Bernie Dean said
“Throwing super into the housing market would be like throwing petrol on a bonfire – it will jack up prices, inflate young people’s mortgages and add to the aged pension, which taxpayers will have to pay for.”
“Super is meant to be for people’s retirement, not supercharging house prices and pushing the home ownership dream further away.”
“Not only will it lock young people into hugely inflated mortgages without any requirement for their own deposit, it will torpedo investment returns for everyone leading to everyone having far less at retirement.”
“We need sensible solutions to address house prices – like boosting the supply of affordable housing which will bring prices down and get young people into a home without lumbering workers with higher taxes in the future.”
Table 1: Impact on capital city prices of allowing couples to withdraw up to $40,000 from super for a house deposit.
1The median residential property price is sourced from ABS Cat.6416.0 and our estimate covers both established houses and attached dwellings and accessed in February 2021.
Methodology notes: ISA’s modellers analysed current non‑homeowner rates by age, marital status and geographical regions and compared this to 10 years prior as a measure of pent-up demand. They then applied an assumed take-up rate based on a combination of national consumer sentiment survey results and observed take-up of the previous COVID early release scheme to estimate the potential increase in demand. ISA estimated the impact this sudden influx of demand would have on prices by applying demand, supply and income elasticities sourced from a number of Australian academic papers.
Importantly, there is a distinction between an increase in demand and those who may ultimately be successfully at an auction. That is, even those who want to/attempt to access their super but remain priced out of the market would impact demand and play a role in driving up house prices because they are able to then bid more at auction even if ultimately unsuccessful.