Editorial: Swapping one problem for another

13-Apr-2017

By Sarah Kendell

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We’ve now reached the second most exciting time in the financial services industry calendar after end of financial year – guessing what is going to be in this year’s federal budget.

Cluey types should already have their list underway courtesy of the Coalition’s weekly media leaking to test the public’s reaction to various potential budget proposals.

Most worrying to the industry is the proposal that hasn’t yet faded away in the news cycle, and thus we can probably assume is going to be in the final budget papers – allowing first home buyers to divert their compulsory superannuation contributions towards property deposits.

After weeks of hinting through backbencher comments that such a policy could come to pass, the government brought out the big guns this week, using Treasurer Scott Morrison’s address to the Australian Housing and Urban Research Institute to all but confirm its place in the budget.

Morrison appeared to justify the government’s decision to - according to a News Corp report - allow first home buyers to divert compulsory contributions to a home savings account to be matched with personal contributions, by revealing the extent to which superannuants were using lump sums to fund housing upon retirement.

He stated that while the proportion of home owners over 45 with a mortgage had increased, economist Saul Eslake had also warned an increasing proportion of new retirees would use their super savings to pay down mortgage debt, while more retirees could also expect to be living in rented accommodation.

The housing affordability problem for generation Y in particular is a concern. It’s easy to dismiss millennials as a generation of entitled whingers whose spending priorities are responsible for their lack of a deposit.

On the other hand, you could argue gen Ys have no need for home ownership given they are interested in living a more nomadic life with regular changes in jobs, relationships and living situations.

All of which are valid points until the prospect of retirement is raised. Recent data from the Association of Superannuation Funds of Australia (ASFA) indicates a couple retiring today would need $1.16 million in super to cover their living expenses if they did not own a home, almost double the suggested amount of $640,000 for home owner couples.

Given the low proportion of baby boomers retiring as renters this may not be such a problem today, but Morrison also indicated that fewer than 30 per cent of 25 to 34-year-olds currently own their own home.

This rises to just over 52 per cent for those aged 35-44, suggesting some are waiting longer to buy a home rather than opting out altogether. But that’s still almost half the population who will need more than a million dollars in super to cover their housing costs – an amount ASFA says is impossible to get to under current super guarantee levels.

The problem this trend will create is undeniable – the question is whether using super savings is the best way to address it. If cash savings and physical shelter are the two pillars of retirement readiness, eroding one at the expense of another doesn’t seem to make sense.

The idea of a tax-free savings vehicle reserved for first home deposits – similar to the Rudd government’s poorly implemented First Home Saver accounts – isn’t in itself a bad idea. But redirecting super savings will only see gen Ys fall short of the lump sum needed to cover living costs when they retire, which will likely mean selling their home to make up the shortfall.

Sydney and Melbourne property markets are also ludicrously overvalued, and don’t make sense from an investment perspective if you remove the emotional and social value of owning a home.

The government would do better to either intervene in market dynamics by phasing out investment buyer incentives, or wait for the current price spike to peter out before encouraging masses of young people to buy overpriced assets with their retirement savings.

Means-tested tax-deductible advice could also play a valuable role in helping millennials to amass a home deposit more quickly.

Having grown up in a culture of consumerism and readily available indulgent ways to spend our money, we gen Ys do need help with our budgeting, as well as advice on how to consider property investing in a financial rather than emotional way.

Having a financial coach by our side – particularly one whose services we could write off against next year’s tax bill – could prove infinitely more valuable than betting our super on an overpriced inner west terrace.

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