Home Accountant Why This Accountant Says Using Super To Buy Your First Home Is A Dumb Idea

Why This Accountant Says Using Super To Buy Your First Home Is A Dumb Idea

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Now, before you start calling me a liberal basher, let me set the record straight – I hate all political parties equally!

Government policy is rarely about the greater good and is mostly used to try to win votes (read bribe? Verb; to dishonestly persuade (someone) to act in one’s favor by a gift of money or other inducement.)

The Coalition’s May 15 press release stated, “Under the Super Home Buyer Scheme, homebuyers will be able to invest up to 40% of their retirement pension, up to a maximum of $50,000 to help when buying their first home… When you sell, the amount you invested is returned to your super plus a share of any capital gains.

As always, such policies are poorly thought out and never address assumptions. In this case, this includes:

  • What happens if the property breaks down? ;
  • What happens at death? ;
  • What happens in the event of a divorce?;
  • What happens if the house is not sold when a taxpayer is potentially eligible for an old age pension? ;
  • If there is a gain and it is returned to a superfund, what are the tax implications? ;
  • What happens if the price drops and the value is less than the loan — will the super portion be taken by the bank? ; and
  • Is a limited recourse borrowing agreement required? Will banks charge a higher interest rate due to less security?

This policy will allow an influx of new entrants to the real estate market, leading to an increase in demand, then upward pressure on prices. Even Superannuation Minister Jane Hume has admitted that Australian house prices will “temporarily” rise as a result of the government’s new home purchase programme. This is the opposite of what the policy purports to achieve, which is to make homeownership more affordable.

In my mind, it’s a band-aid solution. Over the years, state and federal housing incentives and strategies have morphed into cash grants, stamp duty waivers, ultra-low interest rates, and now using superannuation. As prices have gone up, incentives have gone up, etc.

Bank and property developer lobbyists seem to have government tied around their little fingers. The only lobbyists listened to by politicians are those who make profits for themselves and not for the good of society. I have personally lobbied in Western Australia for a meeting with the Prime Minister, Minister for Education and Deputy Minister for Education regarding improving the state of financial literacy in WA schools, without success to even get a meeting (let alone start a meaningful change). If someone has an extra $10,000 for a seat at a political dinner…

Raising house prices more than long-term inflation is bad for society as a whole. An ever-increasing share of revenue is used to service mortgage loans, even in an extremely low interest rate environment. This leads to less disposable income to spend on other things in the economy.

No politician has the courage to do what is necessary to slow the growth of property to a rate close to the rate of inflation. I would like to see concessions decrease over time and a limit of two properties per person. First-time home buyers should also moderate their expectations. A single person doesn’t need a four-bedroom house.

My lovely wife Kate has heard me talk about all things money for 20 years. And I can just hear him say “it has something to do with eggs and baskets, doesn’t it?”, when it comes to putting more than 100% of your wealth in a single asset.

Personally, I would like real estate to be a social good and not an investment class. I don’t have all the answers, but the options presented by the major parties point in the wrong direction.

Disclosure: I have interests in residential and commercial properties. The proposed policy will probably make me money. But sometimes you have to look beyond your own circumstances to decide what’s best for society as a whole.