Will recent changes to super help first homebuyers?

Experts weigh in on the proposed reforms.

What are the changes?

The First Home Super Saver Scheme (FHSSS) allows first homebuyers to make voluntary contributions to their super, take advantage of paying lower tax on this money, and then withdraw these funds to help buy their first home. 

Meanwhile, the downsizer contribution allows older Australians to deposit the proceeds of a property sale into their super where this wouldn’t otherwise be possible. Participants can potentially save on tax and have more to spend in retirement. 

From 1 July 2022 the FHSSS will be extended to allow participants to save more through their super accounts – up to $50,000 instead of $30,000.

The downsizer contribution incentive will be available to more Australians with the eligibility age being reduced from 65 to 60.

Original rationale for the schemes

The FHSSS was intended to “reduce pressure on housing affordability”.

Similarly, when the downsizer contribution was introduced, the Treasurer said it would help free up housing stock. The logic was that younger people could then buy the homes that older Australians had been incentivised to sell.

Relatively few people have used these schemes. The 2020 Retirement Income Review found only around 8200 people had used the FHSSS since the government introduced it in 2018.

Take-up of the downsizer contribution has also been minimal. Around 9000 people made these contributions in an 18-month period from 2018 to 2020.

The changes announced in the budget, along with efforts to publicise the schemes better and technical changes to make them more user-friendly, should see a higher uptake. But will these policies achieve their goal of improving housing affordability?

Will the FHSSS make houses more affordable?

A range of experts believe the initiative could actually see house prices rise. 

Cameron Murray, an economist and research fellow at the University of Sydney, says the scheme, even in its expanded form, will not achieve its goals.

“The data seems to suggest that almost nobody is going to use the scheme for long enough to save over $30,000 but below $50,000 and still be in the market for a first home,” he says. “There will be almost no effect on anything.”

‘Tinkering around the edges’

Dr Katrina Raynor, a research fellow at the University of Melbourne, says the change to the FHSSS is “tinkering around the edges” and won’t help housing affordability from an equity perspective. 

Andrew Boal, consulting partner at Deloitte, is more positive on the changes, believing the move to $50,000 is “quite meaningful” as first homebuyers often buy cheaper homes and the tax concession of FHSSS will help them save a deposit.

He does, however, believe that FHSSS is likely to drive up house prices to some extent, though not across the board.

The downsizer contribution and housing affordability

In theory, the downsizer contribution could operate to facilitate ‘swaps’ of properties, where older Australians who no longer need such a large house are encouraged to sell it by the tax savings on offer, meaning more properties are available for younger Australians to purchase. 

Mixed reception

The experts were mixed on this scheme. Richard Holden, a professor of economics at the University of New South Wales (UNSW), sees the scheme as “potentially quite a good idea”. 

“Anything that can nudge people to make a choice that they would ordinarily make absent stamp duty is probably a good idea,” he says.

Boal believes allowing these contributions is beneficial from a fairness perspective, potentially helping Australians who haven’t been entitled to compulsory super through their whole career save more for retirement. The super guarantee was only introduced in 1992 and has risen substantially since then.

This is money for jam for accountants, tax advisors and wealthy retireesCameron Murray, economist, University of Sydney

There may be many other factors in whether older Australians decide to downsize. This includes the availability of suitable housing to move into, transaction costs such as stamp duty, the hassle of moving, an attachment to home and a desire to pass property on to children.

Perhaps most importantly, the primary residence is exempt from the means test for the Age Pension, meaning prior to this initiative there was less incentive to downsize as the profit from a sale could see someone’s pension income decrease.

But Raynor is scathing. “This is a throwaway policy that will benefit some people, but isn’t about making housing more affordable,” she says.

Murray says it’s a badly targeted incentive which won’t help those trying to get into the property market. “This is money for jam for accountants, tax advisors and wealthy retirees,” he says.

These schemes address demand, but not supply

What happens if homebuyers have more money to buy a place but the number of houses stays the same? According to the experts, prices go up and the problem remains unsolved.

As Holden explains, the FHSSS “increases demand while nothing happens to supply”. 

“There’s a whole lot of evidence that every First Home Owner grant type scheme – and this goes back decades and decades – is basically a straight transfer to sellers,” he says.

Higher house prices

Brendan Coates, program director for household finances at the Grattan Institute, says the FHSSS will increase demand but not supply and this means it will “inevitably” lead to higher house prices.

Boal believes it’s “not unhelpful” to give potential homebuyers some tax concessions to help them build up a deposit but notes this is only part of the equation.

There’s a whole lot of evidence that every First Home Owner grant type scheme… is basically a straight transfer to sellers

Richard Holden, professor of economics, UNSW

“The main issue is on the supply side,” he says. “If you compare Australia to a lot of overseas markets, the cost of building new homes is quite high.”

Peter Tulip, chief economist at the Centre for Independent Studies, says it’s not just the federal government that has a role to play on housing supply: “We need to relax planning restrictions; state and local governments need to stop saying ‘no’ to new proposals, and start saying ‘yes’.”

National Shelter also criticised the budget announcements as adding to demand “without a commensurate additional supply strategy”. The organisation was also critical of the budget more broadly for not allocating more funding to social and affordable housing.

Whom do these initiatives help?

A common theme in the experts’ comments, and those from housing advocates, is that the initiatives don’t help those who’d otherwise be locked out of the market.

“Any housing package can’t just focus on people who can already afford to buy a home,” said Everybody’s Home spokesperson Kate Colvin after the budget.

“It must also include investment in social and affordable housing to provide long-term housing that struggling renters in Australia can afford.”

More new homes needed

Tulip believes that more social housing could help, but getting new homes built is more relevant than who constructs them and the government ‘getting out of the way’ of new dwellings would be the most efficient measure.

Australian Council of Social Service (ACOSS) said the budget “does nothing to improve access to secure and affordable housing for people on the lowest incomes, and instead adds fuel to the fire of out-of-control housing costs.”

Is super the solution to housing affordability?

The Retirement Income Review confirmed that home ownership is “an important influence on a person’s standard of living in retirement”. The review also confirmed renters have higher levels of financial stress in retirement than homeowners.

The Australian Human Rights Commission has also noted its concerns over the amount of older women facing homelessness.

Changes to super, however, are not the only policy lever available to a government looking to improve housing affordability. 

“They’re completely unrelated,” University of Sydney’s Murray says of super and housing affordability.

A significant drawback with super-based solutions is that super is a contributory system – the more you earn in salary, the more you’ll get in super. Low-income earners, gig economy workers, carers and others who have been out of the full-time workplace may have limited super balances.

While the FHSSS doesn’t involve tapping into super per se, it also has very limited capacity to help those who can’t afford to save for a deposit.

Text-only accessible version

Only some policies will actually improve housing affordability, and these are politically difficult

Policies with positive impact:

Boost density in middle suburbs (very large impact, politically difficult)
Boost density along transport corridors (large impact, difficult)
Greenfield land supply (large impact, medium difficulty)
Capital gains tax on primary residence (large impact, politically difficult)
Abolish stamp duty (medium impact, politically difficult)
Improve project transport selection (medium impact, politically difficult)
Reform state land taxes (medium impact, politically difficult)
Reduce capital gains tax discount (medium impact, medium difficulty)
Limit negative gearing (medium impact, politically difficult)
Macro-prudential rules (medium impact, medium difficulty)
Home in pension assets test (small impact, politically difficult)
Congestion charging (small impact, politically difficult)
Improve rental conditions (small impact, medium difficulty)
Foreign investor crackdown (small impact, easy)
Tax empty dwellings (minimal impact, easy)
SMSF borrowing (minimal impact, easy)

Policies with negative impact:

Reduce immigration (large impact, medium difficulty)
Stamp duty exemptions for downsizers (small impact, easy)
Downsizers keep pension/exempt from super rules (small impact, easy)
Social housing bond aggregator (minimal impact, easy)
Shared equity schemes (minimal impact, easy)
Deposit saver schemes (minimal impact, easy)
Regional development (minimal impact, easy)
First homebuyer grants/concessions (minimal impact, easy)

Other ways to help Australians with housing security

Any discussion of housing affordability must also acknowledge that many Australians currently have no capacity to buy a home. 

With this in mind, a complete policy response to improving housing outcomes would also include initiatives for low-income workers to have housing security in retirement.

Outside of super, experts have advocated numerous ideas on how to help more people find secure housing and or buy a home. These include: 

• more social housing
• incentives for build-to-rent dwellings (which could provide lower cost and stable housing)
• targeted equity share schemes (which could help potential homebuyers by lowering the initial deposit amount and ongoing costs through partnership with a government body)
• changing zoning laws to make it easier to build new houses
• transitioning from stamp duty to a land tax (this would lower the initial transaction costs for buyers who could pay an annual tax instead of a one-off stamp duty sum)
• rethinking negative gearing and capital gains tax concessions, which some have linked to rising house prices
• rethinking the exemption for the home in the means test for the Age Pension.

The 2021 Federal Budget also included a measure aimed at helping single parents buy a home with a two percent deposit.

Increasing rent assistance

The Grattan Institute has also advocated for an increase in rent assistance as the most efficient way to reduce poverty in retirement, given that many of the policies above could take decades to boost home ownership levels.

The trouble is that those policies are politically quite challengingBrendan Coates, Grattan Institute

In terms of housing affordability, the Grattan Institute’s Coates nominates reforming planning laws to improve housing supply as the most important long-term measure. 

“The trouble is that those policies are politically quite challenging,” he says.

In the graphic above, the Grattan Institute has plotted the different ideas to tackle housing affordability in terms of how much impact they’d have and the political difficulty in implementing the idea.

The graphic aligns with the expert consensus that tackling housing affordability through these avenues is more efficient and equitable than trying to address them through super.

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.