The wages that Australian millennials are forced to put aside for retirement are better off being spent now buying a home, according to the Centre for Independent Studies (CIS).
- Home ownership rates have tumbled for those aged 25-34 and 35-44
- Property prices have risen sharply relative to incomes, as have home deposits
- Money paid into super funds may be better spent on buying property now, CIS argues
The “massive increase” in house prices — particularly in Sydney and Melbourne — “delays property ownership for first home buyers”, making it much harder for young workers to save for a deposit, said CIS research director Simon Cowan.
“Super is paid for out of the wages of workers, diverting more of those wages to prop up future super balances will damage workers in the present.
“Though it is likely that home ownership is more important than accumulating superannuation, the system prioritises superannuation above home ownership.”
Since compulsory super was introduced in the early 1990s, workers have needed to spend a lot more of their take-home income saving up for home deposits, the right-leaning think tank argued in its latest report.
However, housing affordability was helped by the cost of mortgage repayments falling significantly since then.
The Reserve Bank’s official cash rate was at 12 per cent in early 1991, a figure which has gradually fallen to its current record low level (1.5pc).
Despite the boost from lower interest rates, Mr Cowan believes that compulsory superannuation, which he labels “government paternalism”, has made it too difficult for people to save up for deposits and that “home ownership rates have fallen across every age group” since 1991.
The biggest falls in ownership were seen in the 25-34 and 35-44 age groups.
“The ratio of the average deposit in Sydney to average earnings increased by more than 70 per cent between 1996 and 2015,” Mr Cowan said.
“During the same time, government increased the compulsory super contribution by about the same percentage.
“Not only is that bad housing policy, its actually bad retirement policy as well.”
Employers are currently required to pay an amount equal to 9.5 per cent of their workers’ salaries into the superannuation system — a figure which could gradually increase to 12 per cent by 2025.
The move would strip up to $20 billion from workers’ salaries each year, according to modelling conducted by the Grattan Institute.
“You can be comfortable in retirement without a super balance, but its far harder to do so if you don’t own your home,” Mr Cowan said.
“Making super voluntary would also fix problems with unacceptably high fees and low returns — because super funds would have to compete for your dollars.”
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