Australia’s Treasury Joe Hockey certainly knows how to create waves, doesn’t he? His latest comments regarding home buyers utilising some of their superannuation to assist with purchasing their owner occupied home has facilitated a myriad of responses depending I’m sure on your political affiliation and if you actually own your own home!
Former Prime Minister Paul Keating laid the boot into Mr Hockey for the suggestion, claiming it would “destroy universal retirement savings at its core” and that the key to accumulating enough savings was compound earnings.
Interestingly enough on the above, Mr Keating himself was also an advocate of the idea back in 1993 during his election campaign, stating “For most people… a debt-free home is as important a part of retirement security as superannuation income”. How our memories fade….!
The idea was scrapped in 1994 after Labor commented that “Home ownership affordability is now at its highest level for almost a decade” although the criticism from unions, the super industry and savings experts may have also had something to do with it.
I’m sure your first home buyer who has been living with parents for the past 10 or so years and has built up a reasonable super balance but is continually being priced out of the market might see it as a great opportunity! However as per our previous blog regarding buying property in an SMSF, what will this do to property prices?
Well that question is for another day but lets look into the argument a little more.
Now from the positive point of view, accessing part of your super balance may have a couple of positive affects, just from a lending perspective. It may allow the buyer to provide a larger contribution and therefore lessen or escape the dreaded Lenders Mortgage Insurance, (LMI). Or it really just may allow them to buy a bigger or better located property. Apart from this, the entry point for first home buyers seems at present to be a bridge too far. It would seem that the more and harder they save, the higher the purchase prices go and it is like an elastic stretching out, not contracting! ABS commented that first home buyers accounted for 7.1% of residential loans taken out in NSW last year, one of the lowest levels on record. The general average is around 15%.
In the here and now many people would consider the ability to buy a property now far more useful than receiving a larger sum come retirement time, especially those without a roof over their head!
The other point of interest, would a residential property have a greater chance of growth, (especially in the current environment) than your super fund? More questions than answers!
On the negative side, apart from obviously eroding the country’s wealth in superannuation and retirement income for many, there is the dreaded thought that it may have the opposite effect and actually increase property prices and therefore leading buyers back to square one.
From a Government perspective, not only would there be an approximate $1.1 billion AUD drop in tax revenue, it may force more people onto the old aged pension when their retirement super isn’t sufficient enough for them to live on. Increasing the burden on the country to support an ageing population doesn’t seem like the most sensible of ideas.
While it is certainly not a great time to be a first home buyer with rising property prices, strong investor and overseas interest and reasonable rental returns, things have not been great for the past decade and a half for your average first home buyer. The introduction of the First Home Buyer’s Grant to offset the introduction of GST and capital gains tax being lowered and the attraction of negative gearing set off a housing boom.
Thinking about the First Home Owners Grant, this was also a part response to housing affordability but rather than creating more opportunities for first home buyers, it put more money into the housing market at a time when demand for housing was already high and therefore just pushed prices higher.
So it might be a discussion to proceed with caution, be careful that the idea you have may actually have the reverse effect than was intended, just like the introduction of Cane Toads!