LNP's super-for-housing policy

Forget using it for housing. Just let people use super however they want.

The LNP has announced a limited version of the super-for-housing idea as part of their election campaign. It is capped at $50,000 and requires buyers to save 5% of the home value outside of super. There are no income limits.

To me, it seems as reasonable as Labor’s proposal for the government to buy an equity stake in your home.

Both of these policies reinforce the idea that homeownership is important. We know homeownership keeps people out of poverty in retirement. We know it provides much more security and stability than renting. But saving for a home deposit, while renting, while paying super, and during your lowest income and high expense years of life is hard.

HouseMate

The benefits of homeownership are why I’ve proposed a public homeownership system called HouseMate to address unequal access to homeownership in this country. It is modelled on Singapore’s successful HDB program that boosted homeownership there from 20% in the 1960s to 89% today. I also proposed that superannuation could be used for housing for both a deposit and mortgage repayments in this public homeownership scheme.

The obvious question was “Why can’t a person who misses out on using their super to buy a HouseMate dwelling use it to buy a dwelling in the private market?”

They should be able to.

The reason I proposed using super for a public homeownership scheme where sales are made at regulated prices was to avoid price effects from people using that extra financial firepower to bid up market prices.

Price effects

But the experience of the past couple of years has allayed my concerns about price effects. I think any effect would be extremely small

For starters, we don’t seem to worry when any of the following allows people to spend more on housing where the price effect is much larger.

1. Low interest rate monetary policy

2. Wage rises

3. Low deposit lending

4. Gifts and inheritances

So why this?

We accept that the wealthier we get, the more house prices rise to match our incomes and prevailing interest rates. There is really nothing that can be done about this.

The only escape comes from creating non-market ways of accessing housing. This is why I proposed exactly that with HouseMate.

Regardless, any effect of using super for housing is mostly transitional. It will come from a backlog of buyers entering the market. But even buyers who can use their super won’t keep paying higher and higher prices, and I can’t see why they would pay a lot more than anyone else.

This means that to minimise price effects, implementing the policy now is a good time. First home buying is collapsing after a massive boom, so the backlog of first home buyers is at a low point. Interest rates are rising, and our two biggest cities are seeing flat or falling prices. This takes away the urgency when first home buyers with super start shopping in the market.

The same cyclical factors would also minimise any price effect from Labor’s proposed shared equity scheme if it was implemented today.

Super-for-anything

We had a super-for-anything scheme during COVID. In 2020, 4.5 million people withdrew $37.8 billion in super.

We did this because spending your own money is good and having your money tied up in financial assets when you have other needs is bad.

Some used that to help buy a home. The 2020-21 financial year saw 171,000 first home buyer loans. The average for the decade prior was 93,000, so that's an 83% increase. So people got the benefits of using super for home buying and using super for anything.

Source: https://www.ato.gov.au/uploadedFiles/Content/SPR/downloads/covid19_early_release_of_super_report_infographic.pdf

Scrap superannuation

There are so many problems with the super system that I wrote a report a couple of years back proposing to scrap the system and give people their money back to spend as they please.

Here’s the executive summary

Economically, there can be only one retirement income system. This system allocates goods and services at the time they are needed to retirees who do not have alternative non-work income sources to sustain a socially acceptable level of welfare.

Superannuation does not fulfil the requirements of a retirement income system. Instead, it is best thought of as a growth-sapping, resource-wasting, tax-advantaged asset purchase scheme for the wealthy, which may ultimately have little effect on reducing reliance on the age pension system.

The age pension vastly outperforms superannuation as a retirement income system across three key areas: macroeconomic cost, macroeconomic efficiency, and fairness.

Vested interests perpetuate economic myths to avoid scrutiny of the superannuation system, such as 1) that the age pension system is financially constrained, 2) that pre-funding via asset purchases increases the capacity of a retirement income system, and 3) that superannuation is a payment from employers rather than from wages.

Scrapping the superannuation system would massively improve Australia’s economic performance, and thus the performance of our retirement income system, the age pension. This can be done by forcing employers to pay what is now superannuation directly into wage accounts and allowing all super fund holders to withdraw up to a maximum amount each year during a transition period, after which all super balances will receive no special tax treatment.

The age pension system could also be enhanced in both size (payment rates, including rent assistance) and scope (reducing the age that people qualify from 67 to 60), vastly increasing the fairness and efficiency of Australia’s retirement income system and economy as a whole.

Despite all these obvious flaws, it still puzzles me that the party that apparently represents the political “left” (whatever that really means) is the one so keen on a tax-advantaged privatised retirement income system. I can only imagine that if the super system was proposed by the LNP that Labor would be strongly opposed to it.

Seeing the lifecycle income problem clearly

Both the Labor and LNP housing policies at their core acknowledge the lifecycle income problem.

The problem is this.

Young people in their 20s and 30s are in their lowest income years. They also face their highest living expenses, which include

1. raising children,

2. housing rents,

3. buying household durables,

4. superannuation,

5. saving for a home deposit, and sometimes

6. repaying HECS debts.

Older people in their 50s are in their highest income years and face low living expenses. They typically already own a car and a home, and their children have mostly left home.

Labor tries to remove expense 5. by contributing equity to homeownership. LNP tries to replace expense 5. with 4. Even better though is to remove expense 4. entirely to spend on anything else.

It seems far from optimal to squeeze young people with superannuation when they have more pressing expenses and better times in their lives to save money for retirement if they wish.

Super-for-anything is better than super-for-housing.