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You will have noticed that federal Treasurer Joe Hockey recently suggested – then clarified that it had been suggested to him – that the government would consider letting Australians dip into their superannuation accounts to help fund the purchase of their first home. We can already buy investment property with super, of course, but this idea was to allow a withdrawal of cash from super for the purpose of buying somewhere to live.

On first blush, it’s an idea that seems to have some real merit. After all, Australian house prices (and particularly those in Sydney and Melbourne) are at or near both historical and relative highs, when compared with most countries around the world.

Yes, there are reasons put forward as to why we’re “different” to the rest of the world, but remember housing is only worth what someone else will pay for it. If we all decided to pay less at auction, the prices would fall overnight. Will we? Who knows… but don’t fall for the “we’re different” schtick!

If you’d accept the reasons that are cited, you also need to accept that there are a huge number of Australians who can’t find a home because supply is so constrained (and rents would simply be much higher if that was the case).

What problem are we really solving?

At its core, the “buy a house with super” solution is like treating the symptoms of a problem, and letting the cause go unchecked. The question shouldn’t be “how can we help young adults get into an extraordinarily expensive housing market”, but “why is the housing market so expensive”. And asking the right question is immensely important if we’re going to have the right policy outcome.

Exhibit one is the range of first-home owner’s grants that both the federal and state governments decided to make available, originally to offset the GST, but which has persisted, in different permutations and amounts, ever since. And if that grant wasn’t – and still isn’t – able to make first-home ownership affordable for new buyers, then what makes us think yet another “free kick” scheme would help?

It’s a tempting short-term solution – give people a little extra money to help them get into the housing market. But the first=home owners schemes didn’t meet that aim in the past – and it’s even more doubtful that dipping into super would help in the future. Indeed, think about the simple supply and demand dynamic – rather than levelling the playing field, tapping super is likely to simply be just adding extra demand, and pushing house prices even higher.

Real solutions required

Some commentators have argued that having a house is likely more valuable in retirement than having a few dollars more in super. I can’t disagree with that in theory, but Australia’s policy-makers have more than just a binary choice between the two. And swapping some super for a first home is letting them off the hook – and ignoring the real problem.

It’ll take some real policy guts – and more than a little leadership – for the real problems to be addressed, but they must be. The state and federal treasurers must first look at the supply of land. After that, the distorting effects of negative gearing must be addressed. Like it or not, negative gearing makes it cheaper for an investor to buy a house than for an owner-occupier. And as individuals, we need to get over the “super is our money” greed.

Yes, the money is in your name. But remember, it’s contributed by your employer under government regulation, to replace, in whole or in part, your need to claim on the welfare system in retirement – not as a personal piggy bank. It might be “your” super, but it rightly comes with strings.

Foolish takeaway

Our superannuation system is the envy of the world. It shouldn’t be compromised because policy-makers (of all political persuasions) are unable or unwilling to find better solutions to other problems


Posted by Scott Phillips – Money Manager (Fairfax) on 1st April, 2015