DAVID KOCH: The superannuation fix that could get you owning a home sooner

Housing affordability continues to be smashed because of the continued strong rise in property values and high interest rates. And that affordability issue is not going to improve anytime soon as interest rates are likely to stay at these levels for the foreseeable future and property values continue to rise across most capital cities.

The answer to Australia’s housing affordability problem remains a controversial debate for policymakers as new building supply falls painfully short of demand.

Grants and handouts? They just fuel higher property prices.

Put an end to negative gearing? You risk losing investors and rental supply.

The Federal Opposition and some community groups reckon early access to superannuation could be the long-awaited solution for first home buyers to get a leg onto the property merry-go-round.

Financial planners and superannuation funds are vehemently opposed to the proposition arguing that raiding your superannuation will hurt your future retirement because it would cripple your superannuation payout.

But it is our money, and life is about stages. So why shouldn’t you be able to access a lump of your super to buy a first home BUT then pay it back to have the best of all worlds... a house and a good retirement?

And that is the key. A system where you can access superannuation for a first home but then make extra contributions over your working life to make sure you retire with the same amount.

I asked the expert team at Compare the Market to crunch the numbers to find out how much in extra contributions you’d need to make after withdrawing $50,000 to put towards a deposit.

We’ve made a few assumptions, including that you’re buying a $500,000 home unit in Brisbane with an interest rate of 6.15 per cent.

First, you’ll need to have saved at least $50,000 on your own for the deposit. The extra $50,000 from your super will raise your deposit to 20 per cent to help you avoid Lenders Mortgage Insurance, which would otherwise have cost $15,183.

Remember, you’re not just making up for the $50,000 that you originally took out but also having the accrued return on that money if it had stayed invested. Using AISC’s MoneySmart superannuation calculator, we found that $50,000 from super would grow to around $85,300 over the next 35 years, with an investment return of 7.5 per cent, and taking fees into account.

To recover what you took out, and the potential gains that money would have made, you’d have to make extra contributions to your super of at least $131 every month over the next 35 years of your working life.

To put it in perspective, that’s potentially about what you’re currently paying for your home internet and phone plan. If you already put that money aside each month, you might find it’s easy to cover.

The good news is that you may also be able to benefit from a lower tax rate by making a pre-tax salary sacrifice contribution for that extra $131 a month to your super.

Meanwhile, your loan repayments would be $305 a month cheaper than if you hadn’t used your super to boost your deposit. And, if you hang onto your property long enough, you’ll benefit from positive equity from capital growth of the property, which you wouldn’t otherwise have had if you continued renting.

Plus, you’ll also potentially benefit from tax free capital gains as the value of your home grows... something you’d also be missing out on if you stayed in the rental market.

So, could this actually be a good way to help young Aussies get a foot on the property ladder? The modelling above suggests it could be if you’re disciplined and committed to making those extra contributions.

It does stack up financially. Extra contributions so that you retire on the same amount and building a property asset which produces tax free capital gains.

But there are several reasons this policy should be approached with caution.

House prices have climbed so high that a $50,000 deposit won’t get you far in most cases. The median dwelling in Brisbane costs around $859,000 which calls for a 20 per cent deposit of $171,800.

Besides, most young people don’t have that much super to draw upon in any case. According to a Deloitte analysis in 2023, an average man in the 25-29 age bracket had $43,500 in super, while women in the same range had just $36,600.

Unless you’re in a really good position with a large salary, it’s unlikely you’d be able to take out the maximum $50,000... unless the Government chipped in.

And, of course, while most property is generally a pretty safe investment over the medium to long term, there is always the possibility that something could go wrong. If property values dropped and you were forced to sell with negative equity, you would lose both your house and your retirement nest egg. I can think of very few financial situations that would be more stressful!

The whole point of superannuation is to ensure that people can retire comfortably and confidently without having to rely on the aged pension. But if more people become dependent on social security support, taxpayers could be left to carry the bill.

Deloitte’s modelling suggests that raiding your super to buy a first home (and not paying it back) would increase aged pension spending by $300 billion by the end of the century, even if super access was capped at $50,000.

Putting more cash in first home buyers’ pockets also risks pushing prices up further rather than making properties more affordable. Analysis by the Super Members Council suggests such a policy would add 9 per cent to median prices in capital cities.

So, while some savvy savers may be able to make it work, raiding retirement nest eggs might not be such a super idea for everyone.