The answer to Australia’s housing affordability problem remains a controversial debate for policymakers while new building supply falls painfully short of demand.
Grants and handouts? They just fuel higher property prices.
Put an end to negative gearing? You risk losing investors and rental supply.
Now, the federal opposition reckons early access to superannuation could be the long-awaited solution. But is it?
Your money, your choice
Think of super like the molten hot cookies straight out of the oven Mum has told you not to touch. They’re going to taste so much better when the time is right – an early bite could burn your tongue. You’re risking your long-term security for instant gratification.
But if you’re smart and disciplined, could you dip in just once and restore it without getting burnt?
I understand the argument that raiding your superannuation will hurt your retirement. But it is your money. And life is about stages, so why shouldn’t you use a lump of super to buy a first home BUT then pay it back to have the best of all worlds – a house and a good retirement. A bit like HELP for university fees.
The numbers game
I asked the expert team at Compare the Market to crunch the numbers to find out how many extra contributions you’d need to make to recover after using $50,000 towards a home deposit.
We’ve made a few assumptions, including that you’re buying a $500,000 unit in Brisbane with an interest rate of 6.15%.
First, you’ll need to have saved at least $50,000 on your own for the deposit. The extra $50,000 from your super will raise your contribution to 20% to help you avoid Lenders Mortgage Insurance, which would otherwise have cost you $15,183.
Remember, you’re not just making up for the $50,000 that you took out, but also having the opportunity to accrue a return on that money. Using the MoneySmart super calculator, we found that $50,000 would grow to around $85,300 over the next 35 years, with an investment return of 7.5%, taking fees into account.
To recover what you took out, and the potential gains you would have made, you’d have to make extra contributions to your super of at least $131 every month over the next 35 years of your working life.
That’s potentially about what you’re currently paying for your home internet and phone plan. If you already put that money aside each month, you might find it’s easy to cover.
The good news is that you may also be able to benefit from a lower tax rate by making a pre-tax salary sacrifice to your super.
Meanwhile, your repayments would be $305 a month cheaper than if you hadn’t used your super to boost your deposit. And, if you hang onto your property long enough, you’ll benefit from positive equity, which you wouldn’t otherwise have had if you continued renting.
You’ll also potentially benefit from tax-free capital gains as the value of your home grows – something you’d also be missing out on if you stayed in the rental market.
So, could this actually be a good way to help young Aussies get a foot on the ladder? The modelling above suggests it could be if you’re disciplined and committed to making those extra contributions.
Still, there are several reasons this policy should be approached with caution.
The other numbers game
House prices have climbed so high that a $50,000 deposit won’t get you far in most cases. The median dwelling in Brisbane costs around $859,000 which calls for a 20% deposit of $171,800.
Besides, most young people don’t have that much super to draw upon in any case. According to a Deloitte analysis in 2023, an average man in the 25-29 age bracket had $43,500 in super, while women in the same range had just $36,600.
Unless you’re in a really good position with a large salary, it’s unlikely you’d be able to take out the maximum $50,000, unless the Government chipped in.
And, of course, while most property is generally a fairly safe investment, there is always the possibility that something could go wrong. If you were forced to sell with negative equity, you would lose both your house and your retirement nest egg. I can think of very few financial situations that would be more stressful!
The whole point of super is to ensure that people can retire comfortably and confidently without having to rely on the aged pension. But if more people become dependent on social security support, taxpayers could be left to carry the bill.
Deloitte’s modelling suggests such a policy would increase aged pension spending by $300 billion by the end of the century, even if access were capped at $50,000.
Putting more cash in buyers’ pockets also risks pushing prices up further rather than making properties more affordable. Analysis by the Super Members Council suggests such a policy would add 9% to median prices in capital cities.
So, while some savvy savers may be able to make it work, raiding retirement nest eggs might not be such a super idea for everyone.
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