Housing affordability is shaping up as a major topic as we head toward the next federal election. The numbers are staggering. Ten years ago, the median house price in Sydney was $880,000, and in Melbourne it was $630,000. Today, those figures are $1.7 million and $1.2 million respectively. This equates to an annual increase of 7.93% for Sydney and 6.8% for Melbourne.
Meanwhile, wages have not kept pace. Over the last decade, gross income growth has averaged just 2.18% per year for Sydney and 2.03% for Melbourne. This disparity is continuously widening the gap between the haves and the have-nots. Children of well-resourced parents have been able to enter the market by drawing on the Bank of Mum and Dad, and this demand has driven prices up further, making affordability even harder for those without such support.
The housing market today faces many challenges, all connected and making the problem worse. A sharp rise in migration has led to greater demand for properties, putting pressure on an already tight market. At the same time, there is a growing shortage of skilled workers and building materials, slowing down the construction of new homes. Militant unions pushing for higher wages are also driving up building costs.
Bureaucratic delays add even more problems. Red tape, slow approvals, and the rising costs of regulation make it difficult to start new housing projects. And here’s the catch-22: government incentives meant to help first homebuyers—like reduced stamp duty and special deals—often have the opposite effect. These measures increase demand, which puts more pressure on the market and drives prices up, making homes even less affordable in the long run.
Yet another hurdle is mortgage insurance, which is required for buyers with less than a 20% deposit. For example, analysis from Mozo.com.au shows that if you bought an $850,000 property with a 5% deposit of $42,500, the lender’s mortgage insurance fee would be almost $38,000 – nearly as much as your deposit.
To make matters worse, mortgage insurance is not transferable from one lender to another, even though there are only a few providers in the country. This makes it virtually impossible for anyone with less than 20% equity to refinance their property with a different lender on better terms, because they would need to pay for mortgage insurance all over again.
The Coalition proposes a unique scheme that allows homebuyers to invest up to $50,000 or 40% of their superannuation (whichever is less) toward the purchase of a new or established home. I have been dead against previous suggestions to draw on super, because of the long term detrimental effect on people’s balances, but this scheme has a way to deal with that. Participants are required to refund the withdrawn amount, along with any earnings, when the house is sold. The "interest" rate used to calculate the earnings will be tied to the capital growth of the home.
This scheme will also be available to people who separate later in life, especially to assist women into home ownership, noting the current income and employment gaps compared to men. Participants must live in the property as owner-occupiers for at least 12 months and provide a minimum deposit of 5% of the purchase price, excluding the amount withdrawn from their superannuation. Upon selling the property, they must repay the withdrawn funds along with any proportional gains or losses.
Think about Kerry and Sam, both aged 35, who each have $84,000 in superannuation. Through diligent saving, they have scraped together a deposit of $85,000. But if they buy now, they’ll be liable for nearly $21,000 in mortgage insurance, which will be added to their loan and remain a burden for the life of the loan. However, if they chose to withdraw $36,000 each from their superannuation under the proposed Super Home Buyer Scheme, the mortgage insurance would drop to just $6700. If they focused on paying off the mortgage quickly, in a few years they may be able to get the loan to valuation ratio below 80%, and then be free to refinance at a cheaper interest rate. The ability to access their superannuation has saved them over $14,000, which is a massive return on the $72,000 they have borrowed from their super.
This case study shows the benefit of the superannuation access scheme. Using super funds reduces the loan size, improving loan-to-valuation ratios, and potentially improving eligibility, especially if income is limited. And a smaller loan can be paid off faster, using simple techniques like fortnightly repayments.
If the property appreciates by 3% annually and they sell in five years, the $36,000 each has borrowed from super must be repaid, plus a 3% notional interest matching the capital gain. This strategy helps build financial security by reducing loan interest and increasing property equity through capital growth. The Coalition needs to add just one feature: make mortgage insurance transferable between lenders. This would be a game-changer.
Noel Whittaker is the author of 'Retirement Made Simple' and numerous other books on personal finance. See noelwhittaker.com.au. This article is for general information only. Noel's latest book, Wills, death & taxes made simple, is available now.