There is no doubt that housing supply and housing affordability are huge problems for people looking to buy their first home. It is estimated that in 2000 the median house price was about four times the average annual full-time salary; by 2023 it had risen to eight times the mean income.
Of course, it is tempting to think about your super balance and what it might do to assist with a deposit. In fact, the issue of using super for the purchase of a home is likely to be a point of contention at the next federal election.
First-home super saver scheme
There is one option currently available to assist members to save for a first home deposit, the First-Home Super Saver scheme (FHSS). Under this scheme, if you have never owned a home, you can save up to $15,000 per year through super to a maximum of $50,000 which can then be used to help fund a home purchase.
Contributions received before 1 July 2017 cannot be withdrawn under this scheme. For concessional contributions such as salary sacrifice you will be taxed at 15 per cent upon receipt and the tax payable on the FHSS payment will be at your individual marginal tax rate with a tax offset of 30 per cent.
After-tax or (non-concessional) contributions receive no tax upon being received by the fund or at withdrawal. And the earnings on the contributions are taxed at the individual marginal tax rate with a tax offset of 30%.
Applying for release
When you’re ready to purchase your first home, it is possible under the FFSS scheme to apply for a release of up to $15,000 per financial year of your voluntary savings with a cap or maximum withdrawal of $50,00 for eligible applicants. If applicable, your spouse can also apply for release under the FHSS scheme.
This is a clear tax advantage as the tax rate is generally lower within super and when you take the money out you will be able to withdraw the amount you contributed plus the earnings it has accrued while in super up to the limit.
From the date you make the request for the release of funds under the FHSS, there is a 12-month period to sign a contract to purchase your property.
This is simply a planned scheme providing tax advantages for first-home buyers to save via extra contributions; and because you are withdrawing additional savings without actually dipping into your super, it should keep you on track for your retirement plan.
An alternative vision
The federal opposition has other ideas regarding super. Let’s face it, the Coalition has never warmed to compulsory super, and have on various occasions attempted to dismantle it with early release proposals.
Consider the release of $36 billion during the COVID crisis. According to early reports, the Coalition plans to revisit the stale super-for-housing scheme which flopped at the last federal election in 2022.
It flopped for a good reason – super is for the retirement benefit of working people and their dependants. It is not there to solve the government’s housing problems or any other ad hoc problems. The ‘sole purpose test’ specifically stipulates that superannuation should be used for the retirement benefits of members and their dependants.
Price hike possible
The Coalition’s Super Home Buyer Scheme is also likely to have negative consequences for the housing market. Super Members Council chief executive Misha Schubert has stated: “Using retirement savings for house deposits would just unleash a huge price hike.”
Further SMC modelling concluded that house prices in all capitals would rise under the Coalition proposal, with Sydney median prices rising by $80,000 as a result of the newly released cash.
Despite this, the Liberal Party, if elected, as outlined in its Housing and Ownership paper, stipulates that the Super Home Buyer Scheme will allow first home buyers to invest up to 40 per cent of their superannuation, up to a maximum of $50,000 to assist with the purchase of their first home.
A study by the Association of Superannuation Funds of Australia (ASFA) concluded that for many young people, accessing superannuation for a home deposit is not enough to get through the first home entry barrier.
ASFA said that, if implemented, this scheme would most likely benefit only those high-income earners with the potential to increase their borrowing capacity.
Raiding super not the solution
ASFA chief executive Mary Delahunty has stated: “While superannuation may seem like a tempting pot to raid, our analysis shows it will only benefit those young people who are already more likely to be able to afford a home, and not solve the crippling supply-side deficit that is fuelling our housing crisis.”
No doubt superannuation will always be tempting for future governments to use to solve various economic crises, but let’s keep in mind its “sole purpose” – retirement savings.