Using superannuation funds to help first homebuyers get into the housing market is attractive at first glance but closer examination reveals high costs experts warn.
The idea has been used in Singapore and Canada where retirement schemes were opened up to certain types of real estate purchases. Prime Minister Tony Abbott says given its use overseas and the fact that it is an idea that has been around for a long time, he is happy to consider the subject describing it as a ‘perfectly good and respectable idea’.
Experts in the field are cautious.
Respected economist Saul Eslake from Bank of America Merrill Lynch argues it would drive up house prices.
"We have 50 years of history that convincingly demonstrates that anything that allows people to spend more on housing than they otherwise would in a supply constrained market such as we have leads only to more expensive housing."
“The idea of allowing people to dip into their superannuation in order to buy a first home means only that people would have more money to spend on their first home than otherwise which would result in first homes and other homes becoming more expensive. We know from the experience of the last five decades the only beneficiaries of that are people who already own at least one home rather than people who are trying to buy their first home.”
The superannuation industry believes overseas examples haven’t worked.
According to CEO of the Association of Superannuation Funds of Australia, Pauline Vamos, Canada found the plan impacted on final retirement savings.
“We have urged everybody as they start this conversation to exercise caution” Ms Vamos told SBS television.
“This idea is not new. It has been used in Canada and used in Singapore. Both times it was not the success people wanted.”
“It was a significant detriment particularly in Canada on the final retirement of many people in the Canadian system. We have to understand our system is not fully mature. For most people the only way they are able to build an adequate retirement, enough money to fund themselves all the way through retirement, is to put a little bit away over the longer term because that is how they access compound interest. If right at the beginning any money is taken out and put for other purposes in future dollars for a young person it could be a drop in over $260,000 in their final account balance. ”
Prime Minister Abbott says it is an idea worth talking about.
“It is something that I am very happy to see further debated but there are obviously some issues around it and let's fully consider it. At this stage we don't have any plans to introduce it.”
Shadow Treasurer Chris Bowen has rejected the idea.
"This is another thought bubble which seeks to undermine superannuation."
