Last week, Malcolm Turnbull and the Liberals have been fighting amongst themselves about whether young Australians should be allowed to use their superannuation to buy their first home.
On the surface, it may seem like an attractive idea: all that money just sitting there doing nothing, right? Wrong.
The truth is that letting people use their super to buy a home will just push up house prices even further. And it does nothing to increase housing supply.
All it does is put extra money in the market that will fuel a bidding war – driving up house prices. Housing prices already rose 19 per cent in Sydney in the last year. The real beneficiaries of the policy will be the sellers of homes, not the buyers, who are just taking on a bigger debt to buy an overpriced house.
First home buyers will still be competing against cashed up investors. In New South Wales, there’s been a 60 per cent jump in the number of homes purchased by investors in the last three years.
Until we do something about negative gearing and capital gains concessions, first home buyers will always be competing against cashed up investors who get the most generous tax breaks in the world.
The release of tax statistics for 2014-15 has shown the greatest share of negative gearing benefits go to the rich, with the biggest growth to those owning multiple properties.
The Liberals want young people to use up their own superannuation savings to buy their first house. Meanwhile, they’ll keep giving billions of dollars in generous tax incentives to people buying their second, sixth or twentieth home.
Using your super now means you will be poorer in retirement. Compounding interest means a little more savings early on becomes a much higher income when you retire. If by some miracle a 35 year-old already had $100,000 in their super (for people 30 to 34 years of age the average super balance is around $36,400 for men and $25,550 for women) to withdraw for a deposit, they could end up having hundreds of thousands of dollars less in retirement.
Everyone knows a strong superannuation system is crucial to managing the costs of Australia’s ageing population. It is a desperate and irresponsible Government that’s willing to trade away people’s retirement incomes so they can keep giving tax breaks to cashed up investors.
The Liberals got rid of the First Home Saver Accounts that Labor set up in government. First Home Saver Accounts had all of the same tax benefits as superannuation but the money was additional to your super, so you didn’t end up poor in retirement.
If you’re in the housing market already, you might be feeling pretty good about the 19% growth in property prices this year in Sydney, or the 16 per cent growth in Melbourne.
But then you think about the kids: there is a growing number of us worried that our children won’t be able to afford to live in the same city as us. People today are paying 15 times their annual income to purchase a new home compared with five times their annual income 25 years ago.
Just pumping more money into an already inflated housing market is, as Malcolm Turnbull has said in the past, “a thoroughly bad idea.”
What do you think about the proposed home buying superannuation scheme?