A plan to help renters get ahead on the property ladder could jeopardise their retirement and place a burden on taxpayers, experts say
Like any major crisis that permeates the fabric of all our lives, the coronavirus pandemic has thrown up demands for a rethink of things we have taken for granted for decades. One such call is that by a group of Liberal MPs to allow young Australians to access their superannuation pot in order to help them buy their first home.
They enter the debating arena at their peril given that the system of mandatory superannuation is one of the sacred cows of Australian public policy. Diverting those funds into the property market is viewed by many economists and market experts – along with the odd former prime minister – as guaranteed to destroy the retirements of millions and simply inflate house prices even further.
But the MPs, notably senators Andrew Bragg and Tim Wilson, have been emboldened by the popularity of the Morrison government’s early super release scheme to help cash-strapped people through the crisis and want to go further, unleashing the billions of dollars stored in retirement balances to help fund property purchases.
Bragg, a NSW senator, says he was inspired by constituents contacting him and pleading to be allowed to access their savings to give them a fighting chance to get on the property ladder.
“I think we’re mature enough to allow Australians to access their super for a first home. It’s an important reform.”
Why force young people to save their hard-earned cash for retirement in 50 years, they ask, if by the time they have saved enough money for a deposit they can’t afford a home and potentially see their super sucked by rent in old age?
Far better allow them to access homeownership just as previous generations have done.
“The best way to manage retirement is to own your own home,” he says. “The data shows 42% of renters in retirement face poverty. Only 6% of homeowners are in the same position meaning that renters face difficult retirement.”
Not surprisingly, the building industry also thinks this would be a good idea.
But economists, super industry leaders and bankers fear that such a plan would only continue the decades-long run of policy decisions such as tax breaks for investors, planning restrictions and high immigration that have made housing less affordable and increased the gulf between property owners and renters.
Saul Eslake, a leading independent economist, said that any policy that put more cash in the hands of Australians to buy houses meant that they would ultimately end up paying more for housing.
“Housing policy has been about making them more expensive, not more affordable,” he argued. “Only 100,000 people a year get on the housing ladder and therefore want lower prices. But around 11m Australians already own a home and want prices going up so politicians can do the maths. The last thing they do is make them cheaper.”
Industry Super Australia chief executive Bernie Dean said: “Using super for a mortgage deposit is a good idea if you want to drive up housing prices, erode workers’ savings and increase taxes.”
“Countless studies show that if you fuel demand in the housing market you only increase prices. So Australians will be paying even more for housing and will have eroded their retirement savings to do so.”
But the issue has been given extra importance by the upcoming outcome of the government review of whether to continue to increase superannuation guarantee contributions from the current 9.5% to 12% by 2025.
The decision is expected soon and could blow open the debate. Some believe that if the super contributions were to increase to the planned cap of 12%, as is legislated and as argued by former prime ministers Paul Keating and Kevin Rudd, then workers would be forced to save too much. In this scenario, allowing them to dip into super makes more sense.
Brendan Coates of the Grattan Institute believes freeing up super now would be a mistake, saying that “you’ve got to be quite nervous” for what it would do to the property market. He also argues that it could also cost the taxpayer more if people ended up not having enough retirement income because they had spent their super on property, increasing demand on aged pension payments.
But he believes that the decision about super contributions could be significant in changing perceptions about the controversial issue.
“Compulsory super contributions are at the right level now,” he said. “If the rate goes to 12%, it’s higher than it should be and we would be forcing people to save too much. But in that case you could allow people to cash out – it’s hard to see why they shouldn’t allow people to do that.”
Yet the decisive factor could be the state of the property market itself and the direction of house prices – a hotly disputed question in the middle of the coronavirus recession.
Although most experts agreed super release could inflate prices, the policy would also be freighted with moral hazard. If governments encourage people to buy property now, the success is contingent on values going up – a major risk at a time when they are stagnating. Furthermore there are signs that housing affordability is beginning to improve and put home ownership within reach for many previously excluded Australians.
Lindsay David, founder of LF Economics, said “we are galloping back to affordability, especially in the apartment market. People are going to be buying at a falling price”. What’s more, he said, the share of the market taken by first home buyers was rising. Figures from the ABS earlier this month said that there had been a 14.4% increase in first-time buyers taking out loans from June to July.
This view is supported by figures released this week by RiskWise Property Research, which details the 10 postcodes most at risk from the flood of new apartments coming on to the market. The analysis shows that in, for example, Rouse Hill in Sydney’s north-west, the number of new apartments coming up for sale in the next two years is 1,661, a rise of 200%. In the inner Brisbane suburb of West End the figure is 26% and in Melbourne it is 13%.
Eslake says intuition points to an increase in forced sellers in the market in the coming months as the recession takes its toll.
“We should not allow people to take more out to pay for something that might go down in value,” he said. “The market is a bit artificial at the moment because there are not many transactions and people are getting a pass because of repayment holidays. But the probability is that prices will fall perhaps 10-20% when market conditions return to normal. Intuition tells me there will be more forced sellers, which means lower prices, which means less need for assistance.”
In addition there are already a number of schemes designed to assist would-be home buyers such as the first home loan deposit scheme (FHLDS), first-home buyer grants administered by the states and territories and the home builder scheme which gives $25,000 for new homes or substantial renovations.
Greg McKenna, chief executive of the Police Bank, said lenders such as his were taking part in that scheme and helping many new home owners.
“First-home owners are sorted to a certain degree and younger Australians should be encouraged to also save for retirement through super and keep their balances in their accounts because the government is supporting them already. It’s the best of both worlds in many ways.”
Source: The Guardian