OPINION: Why I think Joe's first home buyer idea is super
I HAVE been asked a few times what I think about Treasurer Joe Hockey's idea to allow people to dip into their super for a first home.
It is not a bad idea at all.
It will give many people who have been earning good money for a while but who are horrible at saving a way to use their forced savings, their super, to buy themselves a property.
Yes, they could easily save the money themselves but it may well not happen - especially in the early years when young people are setting themselves up, getting married and having children.
Many first home deposits are heavily supported by the first home buyer's parents - who often need that money themselves for their own retirement and Hockey's proposal may make that less necessary.
One counter argument is that it will increase the demand for first homes and therefore the price. That is true and in Australia a bigger demand for housing doesn't really translate into more supply - the fact that we have rather a lot of land but are not developing it is the biggest problem we have in creating affordable housing for all.
Another argument is that those who can't save for a deposit can't service a home loan. That is clearly not true - there is a big difference between what happens when you don't save (that is, nothing) and when you don't pay your mortgage.
A further argument is that money in super will earn higher returns than a deposit in your own home. That is simply preposterous - the deposit in your own home earns far higher returns than any super. A $25,000 deposit on a $250,000 home earns 30% a year, if the value of the property goes up 3% a year. Numerically there is more to this than 30% versus 3% but the basic argument stands.
Hockey's idea will give people a new way to acquire their first home simply by earning good money. If you earn well, your employer super contributions are high and after a while and totally painlessly, you can take your deposit for your first home out of super, sometimes just in time as you may be getting married and the firstborn is on the way.
A high home ownership rate and a good chance for young people to buy their own home is great for a stable society - home loans are among the safest loans there are which means few people currently lose their home by defaulting on their mortgage.
Yes, there will be a few people who will default on their mortgage and lose their home and super, but many others will be able to set a solid foundation for their future rather than have to wait much longer.
However, the details would be crucial so it doesn't become a rort or a trap for those who do it.
* CHRISTOPH SCHNELLE is a life risk and self-managed super funds specialist, and an authorised representative of Big Lamp Pty Ltd, trading as In Your Interest Financial Planning (authorised representative 308161) and FYG Planners Pty Ltd. This information is general in nature and readers should seek professional advice specific to their circumstances.