Housing affordability crisis could render superannuation useless
Australia’s declining home ownership rate a major threat to superannuation system, new report states.
We certainly aren’t short of issues surrounding Australia’s ever-increasing property prices, but now there is another concern to add to the list. If things continue as they are, the housing affordability crisis could completely unravel our superannuation system making it useless for future generations.
The new report, written by independent economist Saul Eslake and commissioned by the Australian Institute of Superannuation Trustees (AIST), was released at the Conference of Major Superannuation Funds on the Gold Coast yesterday.
It says there is a clear correlation between the increase in housing prices and the effectiveness of Australia’s superannuation system.
It also highlights the concerns around Australia’s falling home ownership rates and the increase of renters, saying this is likely condemn future generations to poorer living conditions and higher taxes in retirement.
“If current trends continue, a lot more people will retire with either mortgage debt or having to rely on privately rented housing,” said Eslake.
“Increasing numbers of retirees will use some, if not all, of their superannuation to discharge their outstanding mortgage, which in turn, will see more people rely on the Age Pension.”
What will retirement look like for future generations?
The report identifies the following issues that the current housing affordability crisis may lead to for future generations:
- Fewer retirees will own their own home, resulting in more Australians relying on the private rental market in retirement
- Increased pressure on retirement income due to rising mortgage debt and high rent prices
- More retirees will still be paying off their mortgage rather than owning their home outright. Many will be turning to their super to do this.
- Less secure rental accommodation for retirees as they compete in the competitive private rental market
- Increased housing costs - twice as many retired households are paying more than 30% of their income towards housing now since the turn of the century
- There could be an increased reliance on the aged pension
- Less retirees will be able to afford aged care facilities, as this is commonly financed by selling their house
Australian Institute of Superannuation Trustees CEO Ava Scheerlinck said governments need to consider the wider implications of the housing affordability crisis.
“The assumption that housing is a ‘fourth pillar’ in our retirement income system has become increasingly dubious. Many of the standard ways we measure the adequacy of superannuation assume retirees own their own homes outright when this may no longer be the case for a significant number of Australians,” said Scheerlinck.
What is the solution?
There has been a great deal of hype recently surrounding the government's potential policy of allowing first home buyers to dip into their superannuation to afford a house deposit, however Scheerlinck says this is not the answer.
“The report clearly shows that tapping into super to buy a home would simply lead to higher housing prices, rather than home ownership and favour some groups over others.”
The report suggests some options to tackle the housing affordability crisis include; abolishing or modifying negative gearing/capital gains tax, further tightening of mortgage lending criteria, exempting pensioners from stamp duty when downsizing, more support for the development of affordable rental housing and increase investment in urban infrastructure in new suburbs.