Should superannuation be used for housing?

We take a closer look at the recent proposals.

The government’s review into the retirement income system has prompted debate around whether people should be allowed to access their superannuation to buy housing. 

The review didn’t analyse the desirability of allowing early access to super for housing, or model the impact of such a policy, but this hasn’t stopped debate over whether super should be used for housing, with some politicians reportedly supporting such a proposal.

What the Retirement Income Review found about housing and super

What the review said on this topic and where the debate has gone since are two separate things.

The task of the review was to establish a fact base to inform future debate. On the topic of housing and retirement, it found:

• Housing plays a major role in retirement outcomes.
• Retirees who rent may need to make a similar income to what they earned during their working life to keep a similar standard of living.
• The overall percentage of people who own a home has gone down. In particular, home ownership rates have fallen for younger Australians and lower- to middle-income Australians over the last four decades.
• Among Australians aged 65 and over, current levels of home ownership may not continue.
• Renters in retirement are often in financial stress. Similarly, renting retirees experience high rates of income poverty.
• The value of housing has shot up since the 1990s; this has benefited existing homeowners. The percentage of working-life income needed to pay the mortgage has more than tripled since 1980. This means people have less income left over to spend or save

Another major theme of the review was that Australians don’t make “efficient” use of their assets and savings in retirement. It said that homeowners could access the equity in their home to supplement their retirement income but noted few people take up this option. 

How things currently stand

Generally, you can only access your super before retirement on very limited grounds. These include medical treatment, modifying your home to cater for your disability or making a home loan payment to avoid losing your home.

There is one government initiative that allows people to use their super towards a house deposit, the First Home Super Saver Scheme (FHSSS). This scheme is quite limited; you can only use voluntary contributions and may only withdraw up to $15,000.

Generally, you can only access your super before retirement on very limited grounds

The review said it’s “unclear” whether the FHSSS has been effective. At any rate, few people have made use of it – only 8216 since it was introduced in 2018.

There was also a temporary scheme to allow people impacted by COVID-19 to access up to $20,000 from their super. Some 4.9 million Australians applied to access their super through this scheme.

People who reach retirement age may take out a lump sum to pay off their remaining mortgage. The review found, though, that most people retire as outright owners of their home, with only 10% of households aged 65 and over having a mortgage. 

What are the proposals to use super for housing?

Tim Wilson, chair of the standing committee on economics, has been advocating a change to allow people to use their super savings for housing. Some other politicians have also voiced support for this idea, but the proposal hasn’t become the official government position.

This isn’t a new idea. Several earlier such proposals have sparked debate but not progressed to become government policy. 

The current proposal is only general in nature at this stage. It isn’t clear whether there’d be limits on who could access their super for housing or how much they could access. 

It is childish to oppose Australians using their super to buy a home, but argue it is fine for them to use their super for rising rents in retirement

Tim Wilson, chair of the standing committee on economics

“The most important factor for a secure working life and retirement is owning a house,” Wilson tells Super Consumers Australia.

“It is childish to oppose Australians using their super to buy a home, but argue it is fine for them to use their super for rising rents in retirement and that’s why it should be home first, super second.”

Supporters of the policy have also flagged possibly extending early access to super to other areas.

Shadow minister for superannuation Stephen Jones was also contacted for comment.

What are experts saying about these proposals?

Brendan Coates, program director of household finances at Grattan Institute, says that such a policy would likely help some people but not make a dent in worsening housing affordability.

“Early access to super isn’t going to solve the issue of affordable housing for most Australians,” he says.

Winners and losers

Coates also says the policy would create winners and losers. “If we allowed people to access their super to buy a house, it would probably mean some people could buy a house that otherwise wouldn’t. But it would also raise the prices of homes. That would benefit the sellers, who tend to be boomers, at the expense of prospective homebuyers, who tend to be younger.”

Super is more for retirement than to help people get into home ownership

Ben Phillips, Australian National University

Ben Phillips, an associate professor at the Australian National University (ANU),  notes that withdrawing your super for housing will impact your retirement balance.

“Ultimately, it will probably mean that (people who take money out of their super to buy a house) will have less money in retirement down the track.

“I generally think super is more for retirement than to help people get into home ownership.” 

What impact would opening up super for housing deposits have?

Wilson rejects the notion that his proposal would drive up house prices or impact people’s ability to pay off a home loan. 

“The later Australians buy a home, the more likely they are to buy it at a higher price with less time to pay off; the younger, the more likely the cheaper, and with more time to pay off a mortgage.”

He also downplays concerns that people who used their super to buy a house would find their savings depleted in retirement.

“You can save for retirement once you own a home. You can’t save for a home once you retire,” he says.

Do younger Australians have enough?

Another question is whether young people have enough in their super to afford a home deposit. The tables below show the most recent figures on how much younger Australians have in their super. 

“For most people who are genuinely struggling to buy a house, they’re unlikely to have enough in super to make much of a difference,” says Phillips.

As Coates explains it, there’s a large number of Australians who will never be able to afford a house. For this group, access to super for housing is irrelevant because they tend to have low super balances. 

Kate Colvin, spokesperson for national housing campaign Everybody’s Home, agrees that the proposed policy wouldn’t help those on low incomes.

Many people who are renting and on a low income have very low super balances

Kate Colvin, Everybody’s Home

“Many people who are renting and on a low income have very low super balances, particularly renters who are younger,” she explains.

“Paradoxically, allowing people to use their super for housing would increase the purchasing power of people who have a high income, and so have a relatively high super balance, exactly the group who are already most able to buy. 

“Giving this group access to faster capital will push up prices across the board, making it harder for the people who were already struggling to get a foothold in the market.” 

Have attempts to give homebuyers more money to spend worked in the past?

“Almost certainly, allowing people to draw down superannuation balances in order to purchase housing would have, as its principal consequence, further inflation of house prices,” says Saul Eslake, a former chief economist at Bank of America Merrill Lynch and member of the government’s National Housing Supply Council .

“We now have more than five decades of historical evidence which tells us, almost completely unequivocally, that any policy measures which enable people to pay more for housing than they otherwise would … results not in more people owning homes, but rather in existing homes becoming more expensive.”

Higher demand, higher prices

Coates also points to similar initiatives in the past which haven’t resulted in more affordable housing.

“We’ve seen that, when we add to demand for housing, whether it be through first homebuyers’ grants or stamp duty concessions, we tend to see a spike in prices,” he explains.

“You wouldn’t expect this (proposed policy) would be any different. The long history of these grants is that they get priced in pretty quickly.”

The concept of extra money being ‘priced in’ is an important one here – for example, if you suddenly gained $20,000 to buy a house, but house prices suddenly rose an average of $20,000, you wouldn’t be any closer to owning a house.

Super not the answer?

While the Review clarified that whether or not you own a house plays a massive role in determining your income level and lifestyle in retirement, it didn’t propose that using super to buy a home was the answer.

The long history of these grants is that they get priced in pretty quickly

Brendan Coates, Grattan Institute

“Unaffordable housing is the biggest risk to a comfortable retirement; we see that in close to half of all retired renters are in poverty and many are in financial stress, but the solutions largely lay outside of super,” says Grattan Institute’s Coates.

Grattan Institute has previously advocated reforming planning laws and boosting Rent Assistance to ensure that vulnerable Australians are able to afford housing in retirement.

Uphill battle for low earners

Everybody’s Home’s Colvin says that low-income renters face an uphill battle to save for a home purchase because of the cost of rent. “Building more social and affordable housing so that people have affordable choices in the rental market would help people make ends meet day to day, and would also make it more realistic for people to save for a deposit,” she says.

Analysis by Super Consumers Australia

Modelling by Super Consumers Australia found a middle-income person who ‘restarted’ their super balance at age 35 by taking out all their super to buy a house would end up with $100,000 less in retirement.

This illustrates the trade-off involved in early access to super. While it may seem frustrating that you have savings you can’t access to buy a house, withdrawing this money will inevitably mean you’ve got less saved for retirement. 

We need to address the root causes that see a large number of renters retire in poverty

Xavier O’Halloran, director of Super Consumers Australia

Further, you may be paying more for a house in a market where other prospective homebuyers also have access to their super. 

“To solve this problem we need to address the root causes that see a large number of renters retire in poverty,” says Super Consumers Australia’s Xavier O’Halloran. 

“Continuing to boost demand without looking at the supply side could see us fail to address this problem at all.” 

This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.