If they get their superannuation early, young Australians could see an increase in house prices.
A new study by The McKell Institute has shown that super-for housing could have an inflationary effect on house prices in Australia
The key points of the study that examined Australia’s housing affordability situation were highlighted.
- The demand-side interventions of the Australian government have not led to higher homeownership rates.
- If buyers had access to $30,000 in superannuation savings, it would have little impact on homeownership.
- Buyers could have access to a minimum of $60,000 in their superannuation savings to help them enter the market. This could lead to a sharp rise of house prices in major metropolitan areas.
- Super-for-housing would cause an increase in household debt.
The ACT is the most susceptible to inflation if it has $60,000 of superannuation savings. Expect prices to rise by as much as 28.3%
This scenario would also see Hobart’s home prices rise by 22.8%.
Prices will rise by more than 10% in Adelaide (20%), Perth (18.8%), Brisbane (14.8%), Darwin (12.7%) and Melbourne (10.4%).
The house prices in Sydney will rise by 4.6%.
“Allowing individuals to make additional savings for a home loan deposit, with the tax advantages of super, may make financial sense,” the study said.
“However, allowing individuals to withdraw their mainstream super savings, intended for late retirement income, is a questionable proposed policy.”
Also, people who have access to super-early money are more likely be financially poorer.
Data from 2000 to 2020 showed that superfund returns were higher than real property price appreciation.
“Assuming these historic trends are repeated in the future, this means that cash invested in home ownership will compound at a lower rate than cash invested in super,” the study said, adding that this comes with an assumption that returns are tax free in both scenarios.
This means that those who take advantage of super early savings will see a decrease in their future value.
It is important to remember they don’t have to pay rent for the time that they save. They also pay a lower price when they buy a home than if they had saved five years.
The study’s simulation results show that deducting $40,000 from super is the break-even point for a several cities, including Canberra, Brisbane, Hobart, and Melbourne.
The breaking point for Sydney is $60,000 more due to strong house prices growth.
Both Adelaide and Perth have a $20,000.0 breaking point.
“The analysis clearly shows that households end up worse off if they withdraw greater than these amounts from their savings in super,” the study said.
“Individuals accessing super-for-housing now would drive up housing prices further, in addition to harming their own financial future.
“Subsequent rounds of prospective home buyers would therefore face higher levels of prices still, and demands on their super would need to be higher again to compensate.”