Should Australians be allowed to access their superannuation to pay down their mortgages? As my colleague Miranda Maxwell summed up earlier this week, research at the Australian National University indicates that most Australians would be much better off if they could pay down their existing debt more quickly.
According to the modelling households would, on average, benefit to the tune of around $100,000 if they could redirect their guaranteed superannuation contribution towards paying down their mortgage.
The research comes at a time when there has been widespread discussion about letting first home buyers access their superannuation to fund a housing deposit. This modelling doesn’t deal with this scenario which, for the record, is a terrible idea that no politician should take seriously (Hockey’s housing quick fix is another dumb idea, March 10).
Nevertheless, the plan outlined by the ANU isn’t without its concerns. Without regulatory intervention, it would effectively act as a wealth redistribution vehicle that would shift money from new home buyers towards existing owners and investors.
Much like negative gearing and the capital gains deduction, it would be a disaster for intergenerational fairness and would reduce housing affordability.
The central concern for housing affordability is the fact that without strict regulatory requirements, using our superannuation to pay down our mortgages would quickly become incorporated into price expectations for new buyers.
Those benefits outlined above could potentially end up in the hands of existing property owners and the banks themselves. This process would take place over a number of years, which means that existing home buyers and those about to enter the market would benefit more than those who enter the market in, say, five years’ time.
In the medium-term, rising demand (and more money) runs head first into a relatively fixed housing supply -- and the only logical response is higher property prices.
Knowing that you can take on a greater debt burden, the banks would be willing to lend to households at a much higher loan-to-valuation ratio. Such a policy would be a boon for existing homeowners, who would enjoy greater capital gains without taking on more risk, but potentially a disaster for new homeowners about to enter the market.
Nevertheless, there is a set of circumstances under which this policy could prove beneficial: reducing household debt burdens and increasing household wealth.
First, if this policy was passed, we would need to introduce strict limits on LVRs. This ensures that the deposit and income -- rather than one’s superannuation balance -- is the primary determinant on how much a household can borrow.
Second, banks should disregard superannuation when considering a household’s debt servicing capacity. This ensures that households are not forced to dip into their superannuation to service their debt due to overly generous or predatory lending from the banking sector.
Under these circumstances, new home buyers would be better placed to service their debt without being forced to take on additional debt. Existing home buyers, meanwhile, would benefit from the ability to pay down their mortgages but don’t necessarily gain the additional advantage of higher property prices.
Needless to say, that is a pretty high hurdle for success. What is the likelihood that Australian politicians and regulators would take the appropriate steps to ensure that our superannuation doesn’t simply result in higher house prices and lower affordability? The banks would love nothing more than to shift existing superannuation balances into the Australian property sector.
Recent history -- and we’re talking about negative gearing, the capital gains discount and the first home owner grant -- suggests politicians will jump at the chance to boost house prices and their own personal wealth with scant regard to issues of housing affordability or intergenerational fairness.
With that in mind, hopefully this research by ANU isn’t given serious consideration in Canberra. The answer to our housing affordability issue does not involve our superannuation system but involves unwinding the artificial demand created by existing housing policy and creating a more flexible housing supply.
Usually the best solution to a problem is a direct approach, introducing another variable into the mix -- in this case guaranteed superannuation contributions -- appears to be a very indirect method of fixing a problem that has no shortage of more sensible solutions.