Alarm bells ring on super idea
THERE’S been some talk in recent weeks about allowing first homebuyers to use their superannuation for a house deposit. The idea came from Lateral Economics chief Nicholas Gruen at this month’s tax forum gabfest in Canberra.
Gruen suggested transferring money from young people’s super accounts to a homeloan deposit to help make real estate more affordable for them. Predictably, it was backed by the housing industry but criticised by the super sector.
As for me, alarm bells inside my cavernous skull started ringing loudly.
Firstly, most young people don’t have enough money in super to fund a deposit anyway. With a few years of employer contributions, they typically have less than $10,000. It won’t go far in today’s market.
Secondly, anytime we artificially stimulate a market we are asking for trouble. The beefed-up first homebuyer grants offered until the end of 2009 pushed prices of first homes dramatically higher and caused a surge in new loans but since then we’ve had a huge drop in activity because all the demand was brought forward.
It’s a boom-bust scenario that hurts the housing industry and most likely made first homes more expensive.
Thirdly, the aim of superannuation is not to stimulate the real estate sector. It’s to fund our future where an ageing population will become a big burden on the public pension purse. Super is locked away until retirement for a reason – many of us can’t, won’t use it wisely when we’re young but most of us don’t want to be reliant on a meagre age pension when we retire.
Fourthly, it does nothing to address the housing-supply shortage in Australia that has been blamed for the surge in prices over the past decade. Creating more demand, without extra supply, will only push house prices more out of reach.
There are better ways to help young Australians get their first homes but most require long-term planning and patience.
Parents have a big role to play. Encourage children to start saving early and start putting some of their pocket money – or board as they get older – into a separate account to be used for a deposit when the time comes.
A $300,000 first home in Adelaide will need a deposit of $15,000 to $60,000, depending on your lender.
A few thousand dollars a year saved over five to 10 years will go a long way towards building this deposit. People also should investigate the First Home Saver Account scheme, which has some tax benefits.
The worst thing any potential first homeowner can do is give up. Building a deposit is not easy. All previous generations made financial sacrifices to get their foot in the property door.