New UNSW research: Using super to buy a house

“Should super be used to help younger people buy a house?” asks Professor Anthony Asher from the UNSW Business School. “Why yes, of course, and it is already happening - but for the wrong people.”

Professor Asher has developed a financial planning model of what would happen if people who want to buy their first home can access their super to buy a house, and the implications for their financial wellbeing.

“One of the first result we get from the model is that compulsory superannuation forces families with children to live at a lower standard of living than they would otherwise enjoy,” he says. “Even if they do not buy a house, they could really use the super when the children are toddlers, and the mother is out of the workforce or paying huge care costs.”

If they have children in their early thirties, he has found that compulsory super would allow couples to retire at 55, however they have to drop their discretionary spending by almost 50% compared with what it might be without super. He says: “Also, they must not increase spending when the pressures of maintaining children reduce.”

Therefore, he suggests compulsory super encourages early retirement or leads to a higher standard of living when the children leave home.

Alternatively, the model suggests that to ease financial pressures:

• Women could go back to work earlier after having children.
• Parents could have children later after accumulating more saving.
• Couples should reduce child care and school fees.

He also says that a typical couple should delay buying a house until much later in life. “When if they do, thanks to our home-owner friendly asset test, our happy couple enjoys a significant Age Pension from age 70 instead of age 85,” he says.

The conclusion he came to is that compulsory superannuation creates the following undesirable pressures:

• Constrains people’s spending when they are younger.
• Leads people to have their children later.
• Drives mothers into the workforce earlier.
• Delays the purchase of a house.
• Leads to earlier retirement or a level of spending in retirement that exceeds that of while the children are home.

He does not believe that now is a good time to change the rules and put further upward pressure on housing prices, but an opportunity should eventually arise, and the Federal Budget 2017 would be a great time to look at the issue of using Superannuation for property purchases.

“We also find it bizarre that the younger generation cannot currently borrow against their superannuation, but banks give 30 year loans to 55 year olds that often can only be paid out of superannuation benefits. Now the authorities have re-discovered macro-prudential policies, ensuring loans must be repaid by 65, that will further reduce less desirable demand for housing,” he adds.

For further comment call Anthony Asher on 0424 003257 or a.asher@unsw.edu.au

Media contact: Julian Lorkin: 02 9385 9887