Exclusive: The experts on super access for first home buyers
Senator Nick Xenophon's proposed legislative changes to allow first home buyers to access their superannuation funds for a deposit on their first homes have seen many different reactions from property experts.
“With more and more Australians finding it difficult to break into home ownership, adopting the Canadian scheme would make a difference to many thousands of Australians each year,” said Xenophon.
The Canadian scheme allows first home buyers to extract C$25,000 for the purchase of their first home, which must be repaid into the fund within 15 years.
The scheme has been supported by some industry groups and businesses and derided by others.
Property Observer took the question to the experts: Should first home buyers be allowed to access their superannuation to fund the deposit on their first home?
Catherine Cashmore: market analyst 
Nick Xenophon, along with other groups, such as the REIA, is advocating a policy that will be responsible for making housing affordability worse. The procedure in Canada allows eligible buyers to withdraw up to C$25,000 tax-free from their retirement fund, on the condition that they pay it back over a 15-year period.
If they fail to do this, the amount withdrawn will be taxed as per the income earner's tax bracket. Currently, 35 per cent of Canadians fall into this category. However, according to the CRA, roughly one out of two (47%) contributed less than the required repayment amount over the 2011 tax year. The Government picks up the added income revenue windfall.
Buyers, buoyed by a rent seeking culture that fools the public into believing such policies are designed to be ‘helpful’, over stretch their budget and are left to carry the can in weak economic conditions. In short - you borrow money from yourself at 0% interest and in doing so lose 15 years of compounding 'tax free' interest with average returns in the order of 7%.
Many low to middle-income individuals have inadequate funds to draw upon. So even assuming the scheme were to be effective, the difference it can make to those that need the help is limited.
But the real ‘nub’ of the issue, which Nick Xenophon has failed to acknowledge, is that the Canadian Home Buyer Plan was never intended to aid affordability. It was promoted by the real estate industry following the 1990s recession to stimulate land values and benefit the FIRE (finance, insurance, real estate) sector, along with its economic offshoots - renovations, furniture and appliances, moving costs, tax revenue to government and so forth. The FIRE sector has lobbied to keep in place ever since and also pushed for the threshold to be raised.
Craig MacKenzie: RP Data executive general manager commercial, with research analyst Cameron Kusher
Pros:
- Buyers need genuine savings given the price of housing in cities Sydney and Melbourne and the cost of renting saving deposit is extremely difficult, accessing superannuation would make it easier
- Genworth reports that 1 in 4 first home buyers need assistance from their parents to enter the market, by accessing superannuation they remove the burden from the parents
- In some instances tapping superannuation would mean that the purchaser doesn’t have to pay LMI on their purchase which would reduce the cost of purchase
- The retirement savings pool is one of the largest in the world unlocking a portion of it would enable first home buyers to access one of the most basic human need, shelter
- Superannuation is about forced saving for retirement, a home for owner occupation is a long-term investment so the horizons are aligned.
- Ultimately the position is neutral with the Canadian scheme seeing the amount withdrawn from Canadian Registered Retirement Savings Plan’s (RRSPs) repaid over 15 years.
Cons:
- Accessing Superannuation doesn’t address the key reason why FHB can’t purchase a home, that is that it is too expensive in many areas particularly those areas close to city centres and around major working nodes.
- By accessing Super to purchase a home it would potentially increase home values further, much like the First Home Owners Grant has
- Utilising Superannuation would allow FHB to buy in a location they otherwise couldn’t afford to, is this really a good policy given buyers should by in a location which is aligned with their current means to repay a mortgage.
- The Canadian scheme doesn’t appear to have any penalty or interest associated with withdrawing that money. The amount is paid back over 15 years however, that is 15 years over which that money could have compounded if invested elsewhere.
It should be noted that Canadian RRSPs are somewhat different from Superannuation as they are set up by individuals and in most instances employers don’t contribute to the plan. It is about saving for retirement however, there are no compulsory contributions from the employer rather an RRSP is set up by the employee to save for retirement.
Turn over page for more responses, from Philip Soos, Helen Hodgson and Peter Bushby.
Philip Soos: economist, author and Deakin University PhD candidate
There are three major hurdles to the proposal to allow access to superannuation:
1. Increased demand increases house prices in the relevant price range: as Saul Eslake notes, first homebuyer grants end up in the pockets of vendors. Stamp Duty concessions have been scaled back with some states limiting them to new construction to stimulate housing supply. A similar strategy here could limit house price rises due to increased first home buyer activity.
2. Superannuation is a tax preferred investment, and allowing superannuation withdrawals would exploit this tax advantage. The accumulated superannuation balance is higher than other investments, and a salary sacrifice strategy could take advantage of this. This could be counteracted by taxing withdrawals at the marginal tax rate, less the tax paid by the fund.
3. The funds must be used to acquire and continue to use the property as a residence. There should be a requirement that if the person moves out of the property the funds must be repaid, coupled with compliance measures.
We certainly believe it would be a tool to assist first home buyers., It would actually allow a lot of people to take advantage of and enjoy the benefits of home ownership that they can't quite get at the moment. They might be able to get the money at the end of the day, but if they got it earlier, it could be far more valuable to them, rather than renting and paying off someone else's mortgage.
We believe that it is a viable option. Of course you'll get a negative reaction from the super funds and so on, but we believe that as long as it's operated properly, it could be very valuable.
There are a couple of schemes that operate well around the world. We've identified Canadian and Singaporean schemes that could be translated, though obviously it would work differently here. But the Canadian scheme in particular could be useful to look at.
It's about looking at the elements of it that would work best in our market without damaging existing super funds.
