The proposal to allow young people to use their superannuation savings to access the purchase of a home has taken flak from a wide section of industry leaders who have the financial knowledge to fully understand the risk factor. Former prime minister Paul Keating has added his voice to that opposition.
Perhaps those pushing this idea have forgotten the " how " and " why " superannuation came to be a contract between employers and employees by legislation passed by the national parliament. The nation's money managers sounded the alarm that paying the aged pension out of the public purse was unsustainable. We were living longer and retiring earlier and the demographic of workers to retirees was heading to disaster.
As a matter of necessity we adopted a policy of forcing employers to contribute to the retirement savings of their employees and for all to make a similar contribution to their own retirement. The aim was to eventually see the nation become a country whee the vast majority of people left the workforce as self funded retirees. The aged pension would remain as a backup for those who through misfortune or ill health had not participated in accumulating superannuation in their working lifetime.
The cost of an average home has escalated out of sight and this is particularly prevalent in the capital cities. It has slipped beyond the reach of the average wage earner and many are now destined to rent for their entire lifetime. It is inevitable that if a huge surge of people are allowed to become first home buyers because they can access their superannuation as a home purchase deposit, the cost of homes will become stratospheric. It is the old story of supply and demand - and if demand increases the price inevitably rises.
There is also the problem of this housing bubble bursting and a sharp price retreat. We would do well to remember 2008 when a lot of people found they had a mortgage far bigger than the market price to which homes had dropped. Many also faced foreclosure because they lost their jobs and could no longer pay their loan repayments. Like all commodity markets, housing is subject to price volatility and sudden change.
Even if the housing market retains stability, many will have lost those golden years when their superannuation compounded to the point of providing a sufficient nest egg for retirement. Even selling and downgrading to a cheaper home would be unlikely to leave sufficient balance for a comfortable retirement.
This is not just as Australian problem. It affects housing availability and affordability across world cities and many governments are grappling to find solutions. It is unlikely that we will ever see mass affordable housing within major cities but prices decrease the further away we extend, and the long term answer seems to be cheap and fast public transport to take advantage of that trend.
We open that superannuation door for housing deposits at our peril. Not only may we instigate an unstoppable price spiral but we may doom many to a miserable old age of penury because their nest eggs have been sacrificed for other than their intended purpose.
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