Should we be allowed to use superannuation on house deposits?

We can’t stop talking about housing affordability right now and all eyes are on how the Federal Government will tackle the issue in its May budget.

On Tuesday, while speaking to Sky News, the Assistant Treasurer Michael Sukkar refused to rule out allowing people to dip into their superannuation in order to fund the purchase of their first home.

So, if you’re one of the many Australians who are desperately looking for a way into the housing market, should you be cheering this policy idea or not?

This isn’t the first time we’ve heard this

Superannuation became compulsory in 1992 and ever since then it’s been suggested that people should be allowed to use their contributions to buy a house — in fact, the policy had bipartisan support at the 1993 election.

The idea was later dumped by prime minister Paul Keating, but in recent years a number of prominent politicians have suggested it could make a comeback.

They include then treasurer Joe Hockey in 2015 and Deputy Prime Minister Barnaby Joyce just last year.

Both the current Prime Minister and Treasurer dismissed the idea in the past, with Malcolm Turnbull calling it “thoroughly bad” in 2015. Labor isn’t on board, either.

It’s easy to see the appeal

People might already have enough money for a house deposit — it’s just that they’re not allowed to touch it because it’s tied up in their superannuation fund.

And from the Federal Government’s perspective, it’d essentially be giving people their own money which means it could solve the affordability crisis without taking a hit to the budget (for now, at least).


Surely a win-win situation …

The problem is, it won’t make houses more affordable

It’s simple economics: if you increase demand without increasing supply, prices go up.

Allowing people to access their super for a deposit means more people can afford to buy now — more people in the market equals more demand and higher prices.

It will also mean people have more money up front to spend on a house, further driving prices up.

Mr Sukkar acknowledged as much, saying that the Howard government’s $7,000 first home owners grant could have been paid straight to property developers because “all it did was pump a whole lot of extra money into the market”.

He said that any measures to increase demand would need to be “finely calibrated” with policies to increase supply.

As Brendan Coates and John Daley from the Grattan Institute wrote in 2015, the biggest winners from this superannuation policy would be people who already own their own homes.

Also, it would make superannuation less effective

In 2013/2014, the average superannuation balance for people aged between 30 and 34 was $36,400 for men and $25,550 for women.

You’d need a good chunk of those balances (and then some) for a deposit on a house, especially if you live in Sydney or Melbourne.

If left in your superannuation fund, that money would have become much larger by the time you’re ready to retire because it would have compounded.

The Grattan Institute says this policy would lead to people having less retirement savings, even accounting for them having extra housing assets.


So if you use this scheme, you’ll be relying less on your superannuation and more on your capital assets (as well as the pension, take note governments) when you’re old.

And that’s a problem because …

We’re already relying too much on housing for wealth

If your wealth is tied to housing, you are leaving yourself vulnerable should they ever go down in value.

It might be hard to imagine that currently, especially if you’re in Sydney or Melbourne where there’s been double-digit price growth for much of the past five years, but the party can’t last forever.

These are just some of the reasons the housing market might cool:

We may be at the top of the market. Australian housing is already among the most expensive in the world.

It’s important to realise the money you have in superannuation isn’t cash. Your fund invests your money and so it’s still susceptible to the falls of the stock market.

But the most clichéd piece of investment advice is still one of the best — don’t put all your eggs in one basket. That’s exactly what you’d be doing if you invest all your savings to buy a home.

Also, with superannuation, you’re more or less in the same boat as everyone else. But property markets vary greatly by location — just look at the price falls that have been experienced in Perth, Darwin and mining towns.