Should First Homebuyers be Able to Access Their Super to Buy Property?

There’s a lot of discussion circulating about whether first homebuyers should be able to access their super to buy their first home.

While this isn’t exactly a new topic, fresh debate over the super-for-houses proposal was sparked in early March, after it was reported that the Federal Government is considering adding this initiative to their housing affordability package in the May budget.

While there are some obvious short-term benefits to this proposal, as young buyers will be better equipped to enter the real estate market, there are countless long-term factors that make it a risky move.

Benefits to First Homebuyers

Quoting the effectiveness of a similar scheme that is currently in place in Canada, South Australian Senator, Xenophon believes Australia should adopt a similar strategy. Canadians are able to access as much as $25,000 from their retirement savings, which has improved housing affordability across the country.

It’s hoped that by introducing a similar legislation in Australia, young Aussies will be able to enter the housing market faster, and under less financial stress. This is proposed in light of the fact that the market is increasingly out of reach for most first-time buyers.

What Does This Mean Come Retirement?

If this legislation passes, and young Aussies take a sizeable portion of the super fund to buy a house, what happens when they’re ready to retire?

The whole idea of super is that your money is locked away for decades, which allows it to grow exponentially. This is the beauty of compound interest.

Once described as the eighth wonder of the world by Albert Einstein, after 50 years of compounding your super fund will grow to a point that makes retirement possible.

For instance, if you have $20,000 sitting in a fund that’s compounding at a rate of 7.5 per cent annually, after 20 years that $20,000 becomes $89,000. After 40 years it’s worth $400,000, and after 50 years it grows to a rather handy $841,000.

If you take this $20,000 out to buy a house when you’re 30, you’ll lose a large percentage of that growth, which could potentially make retirement impossible, or at the very least, more difficult.

Will Super-for-houses Really Solve Housing Affordability

It’s difficult to ascertain whether or not this initiative would actually make entering the housing market easier.

There is speculation that this change in super withdrawals could actually drive housing prices up, and there’s also the question of whether young Aussies have enough money in their super fund to really make a difference when saving for a house.

In late 2015, super industry group, ASFA, released research that showed that the average Australian aged 20-24 only had $5118 in their super fund, while those aged 25-29 had a measly $16,441. These savings won’t contribute all that much towards a house deposit, but can make a huge difference come retirement time.

What do you think, should first homebuyers be able to access their super, or should it be left alone?

For any home loan advice, be sure to contact the financial experts at Complete Financial Services – we’re in the business of making dreams a reality!