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Super Home Buyer Scheme: First home-buyers could be allowed to dip into their super
17 May 2022
Scott Morrison has made a new election promise that would allow first home buyers to access part of their superannuation to buy a property, if the Coalition is returned to government. But while the policy has received praise from some commentators, there are also concerns that the Super Home Buyer Scheme could lead to an increase in property prices in the short term and mean longer-term impacts on participants’ retirement savings.
How would the Super Home Buyer Scheme work?
The Liberal Party’s proposed scheme would come into effect on 1 July 2023, and would allow first homebuyers to withdraw up to 40% of the funds in their superannuation, up to a maximum of $50,000, for a house deposit.
Prospective first home buyers must have at least 5% of the deposit saved already, without accessing their super. The purchase must be a first home, and it must be for an owner-occupier purchase. Buyers will be required to live in the home for at least 12 months after utilising the scheme.
There are currently no restrictions proposed for a minimum superannuation balance to access the scheme and also no cap on income, meaning first home buyers from any earnings bracket could potentially make use of the scheme.
Buyers will be able to use it in conjunction with other programs such as the First Home Guarantee scheme and the First Home Super Saver scheme. Couples seeking to make use of the scheme will both be able to access it, and dip into their superannuation individually for a single house purchase.
When announcing the policy, the Prime Minister said that it will apply to both new and existing homes, and whatever amount is invested will be returned to the buyer’s superannuation when the home is sold, plus a share of the capital gain (or capital loss) from the sale of that home.
The scheme would be run via the Australian Taxation Office (ATO).
What could the Super Home Buyer Scheme mean for house prices?
Reactions to the policy announcement have been mixed, with praise from some experts along with concerns from others that the proposal might have the opposite of its intended effect, and could in fact “supercharge” house prices, making it more difficult for first home-buyers to get into the market.
Speaking to ABC News in the wake of the announcement, Glen McCrea of the Association of Superannuation Funds Australia cautioned that such a thing could happen.
“Basically, if supply is fixed and you’re putting more money in people’s pockets, it’s going to put prices up,” he said, adding that Industry Super Australia had estimated a potential price rise of anywhere from 8% to 14%.
Mr McCrea also questioned the benefit of the scheme for young people, given that many may have low superannuation balances and little money to draw on in the first place.
“We’ve just come out of COVID and we had the early release scheme, and there are a million people who now have less than $1,000 in super. A lot of young people and low-income people may not be able to take advantage of the scheme for the reason they don’t have very much super at all.”
Likewise, current Superannuation Minister Jane Hume noted this new policy would “probably push prices temporarily”, though she said this would be offset by other benefits such as fewer people having to rent.
CoreLogic’s Head of Australian Research, Eliza Owen, said the fact that this would be an ongoing scheme, rather than a temporary measure as some first home incentives are, means demand “may not be as concentrated under the Super First Home Buyer Scheme”.
Ms Owen added that existing incentives and other favourable conditions that have attracted first home buyers into the market recently could limit how much additional activity this new scheme could generate.
“First homebuyer demand may have been brought forward through homebuilder, low interest rates and the FHLDS, which may further reduce demand-side shock from the Super Home Buyer Scheme.”
Canstar’s Chief Spokesperson, Steve Mickenbecker, agreed that government schemes for first home buyers were unlikely to have as much impact on house prices now as other factors could.
“It’s not first home buyers and their re-entry into the market that’s going to move the needle on house prices,” he said.
“More than anything else, it’s what investors do. It’s investors that drove prices up in 2021.
“I don’t see incentives and the relatively small number of first home buyers outweighing the impact of rising interest rates over the next two years.”
The Super Home Buyer Scheme was announced alongside a proposed expansion of the downsizing contributions system in super to include those over the age 55 from 1 July 2022, something the Liberal Party has said will help boost the supply of housing for younger families. Currently those over 65 can make a one-off contribution of up to $300,000 into their super from the sale of the family home, outside of the standard contribution limits. The age limit was already scheduled to drop to 60 this year, and it’s possible reducing this age further to 55 may increase the supply of housing in Australia somewhat going forward.
Owner occupied
20% min deposit
Redraw facility
Owner occupied
10% min deposit
Redraw facility
Owner occupied
20% min deposit
Redraw facility
What could the impact of the plan be on retirement savings?
A recent McKell Institute report into the possible effects of allowing people to dip into their superannuation to buy property found that people who did this might expect to be worse off in retirement than those who left the money in their super funds.
The report, entitled Mortgaging our Future, was created in collaboration with researchers from the Centre for Housing, Urban and Regional Planning at the University of South Australia, and it may give pause to those thinking about dipping into their retirement savings to purchase property.
It found that the average returns in a super fund have historically been greater than those you might expect from property investing in the long term, and that young people might see their retirement savings diminish by drawing on funds earlier.
McKell Institute Director Michael Buckland was critical of any plan to use retirement savings to fund property purchases, saying: “Super-for-housing would basically mean first-home buyers handing their hard-earned retirement savings to existing property owners, when they would be much better off investing that money in super.”
“Young Australians need their retirement savings quarantined and compounding,” he continued, cautioning against using these savings to fuel another property price boom.
However, Mr Mickenbecker said the requirement under the new proposed scheme for participants to put the money withdrawn back into super when they sell their home, along with any capital gains based on the amount taken from super initially, meant this scheme could have a more limited long-term impact.
“There would be almost no first home buyers who buy a house aged 30 and then hold onto it for the next 37 years of their work life,” Mr Mickenbecker said.
“The money used must go back in, plus the superannuation share of any capital gain. Will that fully compensate for being out of your investment in super? Maybe not quite, but it’s going to get very close,” he said.
More broadly, some property commentators have suggested this policy could be beneficial in helping Australians achieve the goal of owning their own home before they retire. For instance, Cameron Kusher of PropTrack said that while it may not help with housing affordability, the policy was a “sensible proposal that will help more people once they get to retirement.”
Hypothetical impact of proposed Super Home Buyer Scheme on superannuation savings
Canstar has calculated the potential impact of participating in the proposed scheme on a person’s super savings, based on some hypothetical scenarios, with someone whose super remains untouched acting as a base.
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| Base scenario | Withdraw 40% from super and don’t sell home before retiring |
Withdraw 40% from super but sell home after 10 years |
|
|---|---|---|---|
| Starting age | 30 | ||
| Retirement age | 67 | ||
| Starting gross annual income | $77,948 | ||
| Starting super balance | $30,777 | ||
| Annual super investment returns | 5.63% | ||
| Annual property capital growth | N/A | N/A | 5.53% |
| Super balance at retirement | $441,733 | $418,971 | $441,519 |
| Difference at retirement | – | -$22,762 | -$215 |
Source: www.canstar.com.au. Prepared on 16/05/2022. Scenario begins at the start of the 2022-23 financial year and is based on a 30-year old with a starting balance of $30,777 (per APRA Annual Superannuation Bulletin), starting gross annual income of $77,948 (per ABS Characteristics of Employment – median employee earnings), and retiring at age 67. Super Guarantee (SG) Contribution amounts are per Government-announced rates, and assumed to be paid into a member’s superannuation fund quarterly. Employer contributions are assumed to be taxed at 15%. Net investment returns assumed to be 5.63% p.a. based on the average annual 5-year return of balanced investment options available for a 30-year old on Canstar’s database (with returns effective to 31 Mar 2022). An average life and TPD insurance premium of $291.85 is assumed charged at the end of each year, based on products available for a 35-year old on Canstar’s database. Annual income and insurance premiums are assumed to increase with inflation each year. Inflation is assumed to be 2.5% p.a. due to the rising cost of living (CPI Inflation) in line with the midpoint of the Reserve Bank of Australia’s target inflation range, plus a further 1.5% p.a. due to rising community living standards. Withdrawal of 40% of balance occurs at the start of the first year of the scenario (age 30). Capital gains contribution assumes a purchase price of $827,410 (median combined capital city property price, Corelogic; April 2022). Assumed property growth of 5.53% is the 5-year annual average (ABS Property Price Index, Dec 2021). End balances at retirement are shown in “today’s dollars”, i.e. they have been adjusted for inflation. Please note all information on income and superannuation performance returns are used for illustration purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.
Note that these calculations don’t take into account the possible costs of rent or mortgage payments in retirement, since these can vary significantly across different parts of Australia and because not participating in the Super Home Buyer scheme doesn’t mean a person won’t be able to access the property market another way and still pay off their home loan before they retire. Nonetheless, if a retiree doesn’t own their own home outright it is likely they would have to factor the costs of either rent or mortgage repayments into their budget as well.
What is Labor proposing for housing?
Like keen bidders at a Saturday morning auction, the two major parties have been putting forward their best offers on housing policy to voters ahead of the 21 May federal election.
To assist home buyers in getting into the market, Labor has proposed a shared equity scheme called Help to Buy, which would allow eligible home buyers to get a government contribution of up to 40% of the purchase price of a new home, or 30% of the purchase price of an existing home.
Eligible buyers would need to have at least a 2% deposit saved, would not be required to pay rent on the portion of the home held by the government, and would be able to purchase an additional portion of the home during the loan period.
The Help to Buy scheme would be available to Australians with a taxable income of up to $90,000 for individuals and up to $120,000 for couples. It would only be open to 10,000 Australians per year, but would not be restricted to first home buyers.
Regardless of the political party putting them forward, Mr Mickenbecker said that while government schemes can have some impact, they tend to be more like “bandaids” as opposed to cures to the wider issue of housing affordability.
“With wage growth not keeping up with house price increases, until there is real action on housing affordability it is going to remain very difficult for people, particularly those on low incomes.”
Cover image source: Drazen Zigic/Shutterstock.com.
This article was reviewed by our Sub Editor Tom Letts and Deputy Editor Sean Callery before it was updated, as part of our fact-checking process.
Owner occupied
40% min deposit
Redraw facility
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