Housing policy debate: To dip into your super or not?

This forced savings for your future is largely untouchable before the age of retirement, but there are certain circumstances when you can dip into your super such as severe financial hardship, significant health concerns, or even to buy real estate.

Using superannuation early has been an ongoing policy debate in recent federal elections, so access to it could change in the future. Today’s path to dipping into super is complex and limited, therefore industry experts say it pays to weigh up the pros and cons.

Dipping into super to buy your first property

The Federal Government’s First Home Super Saver scheme is potentially a more tax-efficient way for first-time buyers to save for a home compared with a traditional savings account.

Designed to help hit deposit goals sooner, the FHSS makes the most of super’s tax breaks. By making extra voluntary before-tax contributions you can reduce the tax you pay on your income.

Through your super fund, you can personally contribute up to $15,000 each financial year and withdraw up to $50,000 to buy a home. Although eligibility is assessed on an individual basis, two people could contribute to their own super, then access their FHSS to buy the same property, effectively doubling the total to $100,000.

Concessional contributions are taxed at only 15% typically less than most Australians’ marginal income tax rate. Assessable FHSS amounts also benefit from a 30% FHSS tax offset. In addition to a list of eligibility requirements from the Australian Taxation Office, first-home buyers must live in the property for at least six of the first 12 months.

The great super debate

Introduced prior to the 2022 election, the coalition’s idea is still on the table heading into the 2025 Federal election. It would also allow first-home buyers to access up to $50,000, but as an immediate lump sum.

The Senate Economics Committee handed down its interim report into existing and proposed super for housing policies earlier this year.

“It has been made clear to the committee that having a secure retirement depends heavily on your home ownership status, not your super balance,” said Liberal senator Andrew Bragg.

"We looked at existing and proposed super for housing policies to determine what can be done to help Australians into a first home. The Committee made two recommendations in particular to allow first-home buyers to access more of their super than has been previously proposed, with options for a higher maximum withdrawal cap and without a maximum threshold.”

Research from the Senate Economics Committee found that superannuation money could gain value significantly if invested in property. Picture: Getty

According to the analysis, a 35-year-old who uses super as a 20% deposit on a $800,000 unit, the value of that equity in the unit in today’s dollars would be worth $1.2 million 30 years later at retirement, compared to $319,000 if had it remained in their super.

Some Liberal Party MPs have pushed for single and divorced women to also be allowed early access to their superannuation to buy a home.

In 2022, the Grattan Institute reported that single women who rent, rather than own their homes, were at the greatest risk of poverty in retirement and were the fastest growing group of homeless Australians.

Could accessing super fix housing affordability?

 While the $50,000 limit might not seem like a lot considering median home values across the country, REA Group senior economist Eleanor Creagh said it’s important to look at the big picture.

“Most people in their 20s and 30s don't have large super balances. So, they’ll likely need substantial additional savings on top of any super withdrawal,” she said.

“There's no doubt such a scheme can help some people in terms of housing accessibility, but then there are others for who the balance withdrawal won't be enough to move the needle on home ownership at all.”

According to the Association of Superannuation Funds Australia, the average Gen Z and Gen Y worker has less than $100,000 in their super accounts, bringing the maximum withdrawal amount to approximately half of their current savings.

Superannuation balances of Australians by gender

Source: ASFA, 16 September 2024

“People utilising the saver scheme will miss out on super returns, but on the other hand would benefit from not paying rent. They’d also see any capital gains from owning a property long term,” Ms Creagh said.

“Clearly, we know housing affordability has deteriorated significantly. This could slightly improve accessibility for some individuals, but the trade-off is potentially not having as much super later in life,” Ms Creagh explained, adding that the program had an additional drawback.

“It risks further polarising certain income cohorts. For those with larger superannuation balances, this could bring forward their purchase decision and allow them to access the housing market sooner. But for those with smaller sums it compounds the fact that people on lower incomes might see home ownership slipping further away.”

What impact could it have on property prices

For the 2023/24 financial year, the ATO reported 13,200 individual FHSS payments to a total of $255.2 million. While the money is lifting some buyers onto the property ladder, Ms Creagh said the scheme alone isn’t addressing larger affordability issues.

REA Group senior economist Eleanor Creagh says the government's scheme will not fix widespread affordability issues. Picture: Supplied

“It’s likely to bring forward demand for housing and that potentially translates to further upward pressure on housing prices. It could be considered a Band-Aid fix in terms of increasing demand without increasing supply to match. The overall crux of the issue today is housing supply.”

Superannuation lobby group, Super Members Council, has forecast median house prices in major capital cities could increase by 9% if first-home buyers are allowed to tap into their super under the Liberal Party’s proposed Super Home Buyer Scheme.

Housing affordability needs several ingredients

 AJ Financial Planning founder Alex Jamieson said the complex FHSS scheme is not a one-size-fits-all solution to homeownership.

“There are opportunities with it, but with the more recent changes in tax rates, some of these benefits have become more marginal for lower income earners. If you're a higher income earner, then it's certainly still feasible,” he said.

First-home buyers who access all the government incentives will be the best positioned, according to Mr Jamieson.

“It’s like a cocktail of ingredients. You can look at using the super saver scheme, but there’s also your eligibility around the home loan, the government loan scheme where you’re only required to put down a 5% deposit. Then there are various state-based programs and grants as well,” he said.

“It's really a case of laying out all the opportunities and saying, ‘What should I take advantage of? What am I eligible for? How can I best utilise them?’” If you're solely relying on that one scheme’s tax incentives to achieve your deposit it’s not going to be enough on its own.”

Merimbula-based Mortgage Choice broker Jen Hughes agreed that super should be just one piece of the property puzzle.

“I like the analogy of a cocktail, because every first-home buyer knows about a good cocktail. The most important thing to remember is this is a really complex system, and that's why you need a great team of specialists in your corner who know how the system works. Not only a trusted broker, but a great accountant and it also pays to chat with someone at the ATO who can advise you on projected income how much tax you’ll pay. Ask yourself, is it really cost effective?”

“It’s worth exploring the options because when you think about it, you’re likely paying 30 to 40% of your wage to the government in income tax, then another 10% on anything you buy. Essentially, you're paying for a mortgage with only 50% of what you earn.”