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Despite property prices in Sydney and Melbourne slipping a little in 2018 with further falls expected in the coming year,1 there is still widespread concern over housing affordability in Australia.2
High property prices have locked many people out of home ownership. As a result more and more older Australians are entering retirement without owning their home, or with the burden of a large mortgage that will reduce their funds in retirement.2
However, while the impacts of high prices and declining home ownership can be seen across society, the biggest impact has been on younger Australians, many of whom simply can’t see themselves ever owning their own home.2
A recent report by the Australian Institute of Superannuation Trustees2 indicates that the fear many people have of not having sufficient super, coupled with the tax advantages of negative gearing has led to a boom in property investment. These property investors benefit from the discount available for capital gains on their investment property and the negative gearing tax concessions where their property delivers an income loss.1 This has pushed up property prices, making it harder for first homebuyers to compete. Others argue that demand from rapid population growth in our major cities has played a leading role.4 In reality, it is probably an interplay of all these factors and more that have driven prices up. The question is, what can be done to make housing more affordable?
While reform of the rules around negative gearing tax concessions and discussion about population growth have entered the policy debate and will be factors in the 2019 Federal Election, any possible changes in these areas will need some time to take effect.
In the meantime, if you’re currently saving for a deposit to buy your first home, you could look to the First Home Savers Super Scheme for assistance.
The Scheme was introduced in 2018 and allows you to put some of your super towards a deposit for first home. Under the Scheme you can salary sacrifice up to $15,000 a year to a maximum of $30,000 for an individual over two or more years. As long as you stay under the concessional contributions cap, these funds will be taxed at just 15%. That could increase the savings you put towards a deposit by around 30%, compared to saving through a standard bank account.3
When you’ve found the home you want to purchase, you can withdraw the money and pour it into your deposit. It means a couple could use the Scheme to potentially save up to $60,000 towards their deposit.
To be eligible for the First Home Super Saver Scheme, you need to be at least 18 years old and not owned property in Australia before3. You can’t use your Defined Benefit Fund to participate in the Scheme. The ESSSuper Accumulation Plan is a product that is available to Emergency Services members that want to make contributions in addition to their Defined benefit account. Members will need to apply to the ATO to be part of the First Home Super Saver Scheme before purchasing a property. And it is worth noting that members that lower the rate they contribute to their Defined Benefit Fund will slow the rate of growth of their Defined benefit.5
You’ll find more about the First Home Super Saver Scheme in our previous edition of Super News. You can also check out the ATO website to see if the scheme is a good option for you. For general information about your super fund, you can always talk with one of our Member Education Consultants.
1. House prices to fall 20% in Sydney and Melbourne, says top economist, The Guardian Aust Edition2. Home Truths – Negative Gearing Research, Australian Institute of Superannuation Trustees3. Australian Tax Office Fact Sheet 1.4, Reducing Pressure on Housing Affordability.4. Locked out: It’s all gone horribly wrong for generation rent, news.com.au, Debbie Schipp5. There are maximum limits on before and after tax contributions which are set by the Government, and if these limits are exceeded you may be liable for additional tax. It is important that you monitor your contribution levels as they may change from year to year. Please read the Product Disclosure Statement relevant to your particular fund, available from ESSSuper, for more information.
The information contained in this article is of a general nature only. It should not be considered as a substitute for reading ESSSuper’s Product Disclosure Statement (PDS) that contains detailed information about ESSSuper products, services and features. Before making a decision about an ESSSuper product, you should consider the appropriateness of the product to your personal objectives, financial situation and needs. It may also be beneficial to seek professional advice from a licensed financial planner or adviser. An ESSSuper PDS is available on our website or by calling 1300 650 161.
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