The case for letting first home buyers use super
First home buyers can only hope that official government discussions with New Zealand last week included details of how their first home buyers are allowed to access their KiwiSaver super accounts to assist with their purchase. For many Australians without access to parental help, being granted partial or full access to their compulsory super accounts provides their best chance to obtain a deposit to gain entry to the housing market.
The New Zealand scheme sets limits on the value of the house and income of the purchasers but for eligible applicants speeds up the process of building up a deposit. Even though Australian super funds may object to losing funds under management, the extensive coverage of compulsory super makes this an attractive, low-cost way to help first homebuyers.
The widespread availability and use of mortgage offset accounts provides an effective means to ensure that the money used as a house deposit is not lost to the super system if the house is sold. The money invested in the offset account would remain the property of the super fund and the only cost is that no earnings on the account would accrue to the super fund.
Instead, the income from the offset account would reduce the cost of servicing the mortgage and allow the purchasers to build up their equity. For the government the annual cost would be limited to the loss of the 15 per cent income tax that would otherwise be collected on super fund earnings.
Further safeguards could limit this cost to revenue by, for example, limiting use of the super fund mortgage offset account to a period of, say, ten years when inflation and mortgage repayments have built up the house owners' equity. Such an arrangement would increase the attractions of both compulsory and voluntary super for younger Australians.
Without assistance to achieve home ownership during working life the alternative for non-homeowners is to cash out their super tax-free after age 60 to purchase a home for retirement. Among other things, this is likely to increase the call on the age pension.
Proposals to alter negative gearing and capital gains tax arrangements do nothing to help first home buyers obtain a deposit and build wealth through property price appreciation. Increasing capital gains tax bills could indeed be counterproductive by reducing the incentive for investors to sell existing properties with the previous more favourable capital gains tax liability attached.
Capital gains tax liabilities can be avoided or deferred for many years by not selling and/or bequeathing the property to beneficiaries who don't sell. Increasing the supply of property and helping purchasers build up deposits are key elements in addressing Australia's current housing problems.