Use super savings to solve housing affordability crisis

Embargoed until midnight February 16, 2021

The Australian Institute for Progress has renewed its call for first home buyers to be able to borrow from their superannuation account towards their deposit based on their new study: “Superannuation and Housing: growing the cake and eating it too”.

Executive Director Graham Young said that the AIP’s research showed this would enhance personal savings and financial security on retirement.

“Our modelling shows that over the last 5 years an investment in the average Australian house would have returned a first home buyer with a 5% deposit a 15.57% pa return on equity, compared to 6.0% pa from the average superannuation scheme.

“This is partly a result of gearing, but even when we modelled a house with no gearing the return was 5.99%.

“This suggests that the financial performance of the owner-occupied home will be better than superannuation in the early stages of ownership, and decline to a rate which is similar to that of superannuation over the longer term.”

Mr Young said that it is well-established that retirees who rent are in much more financial stress than those who own their home outright.

“A holistic view of retirement would see home ownership as the number one priority, which is only then followed by superannuation. Not only does a house have investment value, but it also provides shelter, and with high equity, reduces daily expenditure.”

Mr Young said that the institute’s research indicated that house repayments are very affordable on an historical basis, as well as compared to renting, and that the main difficult for borrowers is finding a deposit.

“It takes 53% longer to save for a deposit now than it did in the 1990s, yet we are saving more than ever because of the money being put aside in superannuation for retirement.

“If home purchasers could access those savings the deposit gap would diminish to historically normal proportions.

“This decrease in affordability coincides with a decline in home-ownership from 76.1% in 1994 to 69.8% now.”

Mr Young said the institute’s scheme envisaged the borrower paying the money back into the superfund over time, with interest, so that the capital in the superfund would be preserved.

“In fact, because a home owner pays no rent, the worker would be in a better position to make additional voluntary payments into super later in life if they bought a home as early in life as they oould.”

For further information contact Graham Young: graham.young@aip.asn.au or 0411 104 801.

The Executive Summary is copied below and the whole document can be downloaded by clicking here.

Executive Summary

Research by the Australian Institute for Progress establishes that the biggest impediment to people entering the housing market is the deposit gap which has increased for the average Australian by 57.2%.

Other research shows that the greatest indicator of poverty in retirement is renting.

It is therefore in the interests of retirees to have both superannuation and their own residential dwelling.

Our earlier modelling demonstrated that the return on occupier-owned housing was far superior to the return obtained by even the best superannuation funds, so in 2016 we recommended that Australians should be able to borrow part of their deposit for a new house from their superannuation account.

We have revisited the situation and up-dated the figures over the last five years.

Even though the price of the average Australian dwelling has increased modestly by only 14% in the five years to September 2020, compared to GDP of 14%, the returns on equity to an average homeowner with a 5% deposit was modelled to be 15.57% pa, compared to 6.0% pa for superannuation reported by APRA.

We are therefore repeating our call for the government to allow Australian wage-earners to borrow from their superannuation accounts to contribute to the deposit on their first house, with these borrowings to be repaid over time.

The report also finds that such a scheme:

1. Meets the objectives of superannuation outlined in the Wallis Inquiry;
2. Will not significantly reduce the amount of superannuation available in retirement, but will increase standard of living for retirees;
3. Does not represent an unacceptable increase in investment risk for the borrower;
4. Is less risky than borrowing in an SMSF to fund an investment property, but provides a similar level of exposure to residential real estate as an investment class;
5. Will not inflate the cost of housing.

A number of members of the federal parliament have called for a scheme such as this. This report supports them, and we call on the Minister for Housing and the Minister for Superannuation, Financial Services and the Digital Economy to devise an appropriate scheme.