Australia’s Bold Move For Housing Affordability That Will Back Fire

Housing affordability looms as a significant and delicate concern in Australia. It is mainly due to the fact that a considerable portion of Australians’ wealth is tied to housing.

In Australia, the populace can be broadly segmented into three groups, each comprising roughly a third of the population. One-third typically consists of older generations who outright own their properties. Another third is composed of individuals with mortgages, while the remaining third comprises renters.

Over the past 25 years, there has been a consistent upward trajectory in house prices, with the last decade being particularly noteworthy for witnessing median house prices doubling.

The allure of property investment is understandable given its tendency to “double” in value every decade, further amplified by the potential leverage. However, this hasn’t always been the case. Over a longer timeframe, say a century, the real rate of return has averaged around 3%, significantly lower than the stock market’s 7% average over the same period.

Despite this, property remains a coveted asset due to its tangibility and the fundamental human need for shelter. However, with the increasing financialization of housing, affordability concerns have become more pronounced.

For younger generations, and those in their 30’s, achieving homeownership remains a formidable challenge. Even if they do manage to purchase a property, they often find themselves heavily leveraged relative to their income.

The harsh reality for many young workers is that homeownership without assistance may remain an elusive dream.

Earlier this week, the Australia Liberal Party put forth a proposal aimed at potentially tackling this issue. However, the question arises: does it genuinely alleviate the problem or exacerbate it?

Coalition Addresses Housing Affordability

Just a couple of weeks ago, the Liberal Party revisited their 2022 proposal, which would allow first home buyers to tap into their superannuation funds to purchase a home.

Michael Sukkar, as reported by The Guardian, hinted at the possibility of expanding the Coalition’s super for housing policy to enable first home buyers to withdraw a larger sum.

Initially, the proposal outlined allowances of up to $50,000 for individuals and $100,000 for couples, yet with the continual surge in house prices, these figures may warrant reconsideration.

Consider the original 2022 proposal: buyers are now armed with $100,000 towards a deposit. The prospect of ascending the property ladder appears more attainable, accelerating the path to homeownership.

This isn’t the first instance where the Liberal Party has permitted Australians to tap into their superannuation funds. Just a couple of years ago, amidst the pandemic’s peak, Australians were granted the ability to withdraw up to $20,000.

The outcome was staggering, with over 2.6 million Australians emptying their balances, collectively amassing a substantial $38 billion. While intended as a lifeline for those facing financial hardship, a significant portion of these funds found their way into gambling, department stores, and takeaway meals.

Regrettably, it’s likely that a considerable number of Australians will once again seize this opportunity.

While the immediate prospect of accessing superannuation for housing seems appealing, the long-term ramifications, particularly concerning housing affordability, warrant careful consideration.

Housing Affordability Reality

In the attempt to address housing affordability, this proposal cloaks its true intentions under the guise of “assisting” first home buyers. Beneath the surface, I suspect a hidden agenda aimed at garnering favorable votes for the upcoming federal election.

Few topics resonate as deeply with Australians as the aspiration to own a home—the embodiment of the Australian dream.

For many first home buyers, often young adults entering the market, the reality is daunting. They frequently find themselves priced out of desirable properties.

Considering the median house price in Australia hovers around $1 million, a combined $100,000 amounts to half of a deposit readily available.

In theory, this could significantly increase the likelihood of homeownership for many buyers, expediting their path onto the property ladder. However, herein lies the flaw.

This strategy hinges on the assumption that house prices will remain stable once this additional cash is injected into the market. Yet, history suggests otherwise. If hundreds of thousands of individuals suddenly gain access to an extra $100,000 each, it’s highly probable that property prices will escalate in response.

It is a simple matter of supply and demand. Injecting more money into the market without increasing the housing supply only serves to inflate prices. The pool of prospective buyers expands, intensifying competition.

Ultimately, this only fans the flames of rising house prices. Consequently, these prospective buyers may find themselves compelled to shoulder larger mortgages, having inadvertently contributed to the price surge through their increased bidding power.

Past experiences with first-home owner grants have yielded little success, and I see no reason why this proposal would be any different. As the adage goes, “Insanity is doing the same thing over and over again and expecting different results.”

Robbing Our Future

Our superannuation system was never designed as a convenient reserve for politicians to access at whim. Its purpose was to alleviate the strain on the pension system and empower individuals to finance their own retirement.

However, the Liberal Party has seized opportunities to delve into these funds, presenting it as assistance in property acquisition.

Australia, despite its wealth, finds itself increasingly strained financially. I often draw parallels between society now and its past.

Homes have grown larger, cars fancier; in the 1950s, a family of five could thrive on a single income. Now in 2024, owning a home or supporting a larger family poses significant challenges.

Our parents own homes and have superannuation. Yet, we’re now telling younger generations they must choose between owning a home or having superannuation. Essentially, that’s the decision the Coalition is putting before us.

As a nation, we’re poorer for it if the solution to housing affordability involves raiding our superannuation accounts.

According to FY21 data from the ATO, the median super balance for Australians aged 30 to 34 stood at $38,681, compared to an average balance of $51,400. If an average Australian were to withdraw the full $50,000 from their super balance, what would be the repercussions?

Historically, the stock market has yielded an average nominal return of 9% over the long term. Considering most people retire at 65 to 70, that leaves roughly four decades for superannuation to compound.

At a 9% rate of return, the $50,000 would double five times over 40 years, resulting in it growing to $1.6 million.

This proposal will deprive future generations, who may struggle to see beyond the immediate, of substantial wealth accumulation.

Key Takeaways

• The Liberal Party revisited a proposal allowing first home buyers to use superannuation for housing. Despite potential benefits, we should be cautious regarding the effect it will have on housing affordability.
• The proposal to aid housing affordability may serve political interests rather than genuine assistance for first home buyers. Increasing access to funds could exacerbate housing market inflation, hindering long-term affordability.
• Raiding superannuation for housing affordability sacrifices future wealth accumulation. The proposal undermines super’s purpose, posing challenges for future generations in achieving financial security and retirement goals.

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