The Coalition has announced a new policy proposal. It gives Australians the ability to withdraw $50,000, or 40 percent of their super, for their first home. This new initiative would help address the obstacles first-time buyers are experiencing in an increasingly booming housing market. The bureaucratic scheme demands that you repay whatever you’ve taken out back into your superannuation fund. You need to do this when you sell the property that you bought.
It’s no surprise that this new proposal has elicited an avalanche of opinions from economists and would-be homebuyers across the land. Supporters say it would help more people afford their first home. Critics warn about the potential inflationary effects and adverse effects on retirement savings. The ongoing discussion is whether this policy really helps solve the homeownership challenges we face or if it just makes things worse.
In the wake of surging housing costs, people like Jordan Davies are feeling the direct effects. As a young professional, Jordan is becoming more and more disconnected from the idea of homeownership. Even with a steady income and good employment, he sees that his retirement account has under $30,000 in it. New analysis from the Association of Superannuation Funds shows that the typical 30-something without a home has even less saved. This goes to show the challenge so many have in saving up enough funds for a down payment.
The Policy Proposal
The Coalition’s policy would encourage first home buyers to think differently about their finances. By allowing access to superannuation funds, it seeks to empower individuals like Davies, who feel locked out of the housing market. Despite the harsh criticism, the proposal underlines an increasing sentiment among younger Australians that the traditional Australian dream of homeownership is more out of reach than ever.
The provision requiring any withdrawn funds to be replenished upon selling the property raises questions about long-term financial implications. As critics have pointed out, this could lead to buyers being immediately upside down, or hugely underwater, if housing prices keep inflating.
The idea is similar to the so-called “Bank of Mum and Dad”, in which parents serve as informal financial guarantors for their kids. This points to an even larger pattern. Familial support is an essential factor in enabling people to buy homes, leaving those who lack this safety net at a disadvantage.
Economic Implications
Economists remain sharply divided on the wisdom and potential impacts of this policy. Professor Rachel Viforj, a housing economist at Curtin University, says the scheme has the potential to be very inflationary.
“The scheme will put extra cash into the hands of prospective buyers, therefore just helping them buy property at a higher price.” – Rachel Viforj
In many respects, her comments give voice to an increasing anxiety. The proposal would have the unintended consequence of driving up home prices even more, rewarding existing homeowners while putting new homebuyers further out of reach.
Former Reserve Bank economist Peter Tulip backs the superannuation scheme. He wants it to go further, to include those beyond the first home buyer. He calls for a more holistic, equitable approach. This amendment would allow workers of any age who are first home buyers to access their superannuation.
“The best asset to own when you retire is not shares but a house to live in,” – Cameron Murray
Homeownership is often a key pillar in wealth building and retirement security. This analysis is largely the rationale behind support for the proposed policy.
Long-Term Concerns
Allowing immediate access to superannuation funds would provide fast relief for buyers such as Jordan Davies. On balance, the long-term consequences are the bigger concern. As the Super Members Council has emphasized, there are many traps to avoid. They are sounding alarms at the proposition that using superannuation will considerably reduce retirement savings.
Their modeling yields an encouraging projection. If an example couple took this $55,000 out at age 30 they’d be able to whittle down their superannuation balance at retirement by an average of $149,000. This alarming figure begs the question if these short-term solutions are really worth the long-term sacrifices.
Independent economist Cameron Murray mostly agrees with these concerns. He argues that the superannuation scheme would reduce the necessity of future retirees to rely on government pensions. Financial Security The strong advocacy for the policy from wealthy elites like Kevin Roberts is based on the idea that homeownership builds wealth and prosperity.
