A senior economist says using super for a housing deposit won't help affordability

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Australian PM Malcolm Turnbull is said to be “actively considering” a plan to allow first-home buyers to access their superannuation for use towards a housing deposit, according to reports from Sky News, seemingly the latest in a long line of thought bubbles released by the government recently to tackle housing affordability concerns, particularly in the eastern states.

Shane Oliver, chief economist at AMP Capital, has some simple advice for the government on whether will help address: No, it won’t.

In a research note titled “The Australian housing market – what are the key issues” released this week, Oliver suggests that affordability will only be improved by increased supply and taxation reforms, rather than simply adding more demand to the market.

“Policies to help address poor housing affordability should focus on boosting new supply, particularly of standalone homes which have lagged,” says Oliver.

“This includes relaxing land use restrictions, releasing land faster, speeding up approval processes and encouraging greater decentralisation.

“This is largely a state issue.”

He also suggests that policies designed to make better use of Australia’s existing housing stock, such as making it more palatable for older Australians to downsize their residence, could also help.

On the tax side of the equation, Oliver says that there are reforms that both state and federal governments can introduce to further improve affordability.

“Tax reform should ideally be part of the package and include replacing stamp duty with land tax, removing the capital gains tax discount that is a distortion in the tax system and lower income tax rates to discourage use of negative gearing as a tax avoidance strategy,” he says.

While he does not think that negative gearing should be abolished, suggesting it would just inject another distortion in the tax system and could adversely affect supply, he believes there is a case to cap excessive benefits available to individuals.

As for the plan supposedly being considered by the government to allow first-time buyers to access their super to fund a housing deposit, Oliver believes rather than helping to improve affordability, it would likely do the opposite.

“Policies that are unlikely to be successful include increased first home owner grants and allowing first home buyers to access to their super,” he says, pointing out in periods of high demand they would just result in higher prices being paid.

Given prospective first time buyers are unlikely to hold large super balances given many are in the early stages of their career, any super that could be accessed to fund a deposit suggests it would only be enough to buy cheaper housing stock, putting this group in direct competition with the vast majority of housing investors.

And, as was the case when first home buyer grants were increased in the past, it’s easy to understand why some may be sceptical that this will simply result in higher prices as the market reacts to an expected increase in demand.

There’s also a concern that by accessing super to fund a housing deposit, many young Australians be taking a leveraged bet on their future retirement savings.

While this can, of course, magnify returns should house prices continue to grow, it also raises the risk of negative super balances should a market correction — or worse — occur.

That’s not to say that will happen, or that having housing in superannuation in general is a bad idea, but it is a risk given the scale of the gains in the Sydney and Melbourne property markets over the past eight years as the epicentre of the current housing affordability debate.

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