The ‘super’ way to cure the home ownership crisis 
Posted By Mirko Bagaric on May 1st, 2008
First home buyers should be permitted to access their superannuation to purchase a home. That’s a policy that the Rudd government should be introducing in light of changing economic realities and free market imperatives.
The Australian dream is increasingly becoming the Australian nightmare. A recent report published by the Commonwealth Bank of Australia and the Housing Industry Association confirmed that housing affordability is now the lowest it has been on record.
Average homes in Australia cost 6.1 times the annual household income. In Melbourne, Sydney and the Gold Coast the ratio is around 8. In most western countries the ratio is around 3 to 4. The picture gets far worse when you factor in interest rates. Australia’s are among the highest in the OECD.
So why is it that housing prices in Australia are so inflated? Australian houses don’t cost more because our land is more scarce or our building materials are of higher quality. They cost more for only reason. We place more importance on home ownership than the rest of the world.
This is often to our detriment. We are the only ones silly enough to stretch ourselves to breaking point to have the ‘security of our own home’; even if it means enslaving us to jobs we don’t like and causing us to lose sleep over whether the reserve bank will again crank up interest rates.
Unfortunately, no amount of theorising is likely to result in Australians diluting their desire to own their own patch. Hence, a solution is necessary.
Governments are clueless about how to make housing more affordable for first home buyers. Yet, there is an answer.
It rests in the largesse of the superannuation industry. As a matter of principle, it is repugnant that adult Australians should be forced by government regulation to lock away nine per cent of their hard earned money until they reach retirement age.
This is all the more offensive in climates like we are currently experiencing where your superannuation funds have most likely taken at least a 10 per cent drop since the start of the year because your superannuation manger (who you had no choice in appointing) lacked the economic smarts to invest your money in something other listed shares.
It is too late to agitate for an entire dismantling of the compulsory superannuation system in Australia. About 1,000 billion dollars have been forced from the pockets of Australians into the coffers of big business and there is no way to end this juggernaut.
Still, some tinkering may be possible. The rationale behind compulsory superannuation was to encourage prudential personal investment so that Australians would be less likely to rely on the pension when they retired.
Modelling which compares the efficacy of superannuation with other forms of investment is complex due to the large number of assumptions involved, such as the likely return of superannuation funds over a thirty year period and long term inflation rates.
However, a number of models suggest that you will have more resources at retirement if you plough your extra hard earned into your mortgage than into the lap of a hungry fund manager.
The option of paying off your home and also having a healthy superannuation nest-egg is becoming increasing non-existent for many Australians. For many it is becoming an either/or situation – time to choose between superannuation and a home.
A report released last week by AMP.NATSEM showed that more than twice as many Australains over 60 are paying off a mortgage than they were 10 years ago and that this group has experienced the biggest jump in housing stress –nearly doubling in the decade to 2005-06.
Home ownership is not only often a superior investment choice to superannuation, but also confers a psyche benefit and sense of security that is absent from superannuation investment. Well-being indexes establish that home owners and happier than renters.
Moreover, workers have the right to enjoy the fruits of their labour and should not be forced to defer their spending and well-being. A system of forced savings is counter to notions of personal responsibility and offensive to the intellect of citizens.
Coercive laws are only legitimate where the government can demonstrate that it will encourage compliance with fundamental moral norms that affect the well-being of others or where they will promote the welfare of each individual. This test has not been satisfied in relation to compulsory superannuation.
Allowing first home aspirants to apply their superannuation towards buying a home will have the effect of increasing home prices (in the same way as did the first home buyers grant). However, first home buyers represent only a small portion of all property purchasers and hence the increase will be significantly less than the extra purchasing power of first home buyers.
For them, housing will become a whole lot more affordable. Of course, they may elect to keep their money in superannuation. In any event, in a supposedly free market like Australia, they must be given the choice.
This was published in the Courier Mail (Brisbane) on 1 May 2008.