Interview with Michael McLaren on 2GB

01 April 2024

Subjects: Housing Affordability

E&OE………

Michael McLaren

Well, when it comes to housing, everyone has a suggestion about how to make it more affordable or more available. Some have suggested that young people be able to access some of their super to help get the deposit together, and on face value, I have to say I agree. I think it's a reasonable idea. I mean, put it this way, when you retire and you reach what they call the preservation age, you are allowed to access all of your super and cash it out with the associated tax advantages and then pay off the balance of your mortgage. You can do it. If you have a big enough balance, of course, you could cash the whole thing out and even buy a house. But say you're 35, you're just married, you want to buy in the burbs', well, your super remains locked and unaccessible for the purpose of buying your home. Now I'm not sure that disparity is fair. And someone who agrees is the Shadow Assistant Minister for Home Ownership, Andrew Bragg, and he joins me on the line. Andrew, good afternoon.

Senator Bragg

Happy Easter, Michael. How you going?

Michael McLaren

Look. I'm alright. Housing, it's not a new issue, but potentially exercising super to get into it is, but it also isn't. Because as you know, if, if someone has retired and they take out their super nest egg, cash, big lump sum at the end of their working life, it's tax advantageous. There is absolutely nothing stopping them using all of that to pay off what's left of their mortgage. But if someone who's beginning their super journey wants to use, say, 30, 40, or $50,000 of their nest egg there out of super to put the deposit down, well, that is banned. And you're saying we've got to start liberating the way we think about this.

Senator Bragg

That's exactly right, Michael. And I think we have had a lot of closed mindedness when it comes to thinking about retirement in Australia and also on home ownership. I mean, the idea that superannuation is the only way you can have a comfortable retirement is completely flawed.

Michael McLaren

Yep.

Senator Bragg

The key determinant of your success in retirement is your home ownership status. And for millennials and Gen Z's, they are looking at a trajectory where too many are not going to have a house, and I want to try and arrest that decline.

Michael McLaren

The main argument against this from those in the super industry, and they've got a massive multi trillion dollar vested interests here, but anyway, the main argument from them is, well, look, Andrew, all this is going to do is push up prices because there's now more money available than otherwise would have been the case. And, you know, money is a bit like water. It finds its natural level, and in the housing market, the last thing we need is additional stimulus. That'll only mean that they these young people might have more access to money, but they're going to need more and more money to get the property in the first place, so they're chasing their tail. How do you counter argue that?

Senator Bragg

Well, the non-conflicted economists say that there would be a very small change or no change at all. And, of course, this is a solution that would go hand in hand with a massive increase of supply, Michael. We need to build more houses, particularly in a city like Sydney. But for an older millennial with a super balance of $90,000, say a 38 year old, why would we be banning that person from getting into the first home market? Because absent of the bank of mum and dad, this may be the only opportunity that person has to get onto the Sydney property ladder. So I think it's we, we need to think about what's in the interests of the people, not what's in the best interests of the super fund.

Michael McLaren

Well, I agree with that. And, look, this is a broader conversation though isn't it, in that Andrew, we need to, do we not actually define once and for all what is the purpose of super? What is super for? Because we all have this idea it's to save for our retirement, and we can either then only need a part pension or indeed, hopefully, we could be completely removed from the age pension via, the federal government and live financially independent lives, right till the very end. But it is also true that you can, as we said earlier, just cash your super out as a lump sum and pay off your mortgage. It's also true you can cash it out as a lump sum and go on around the world cruise and then go on the pension. I mean, we have this idea what it's for. We know why it was created, but that doesn't mean that the rules are tight enough to ensure that that's how people utilise super.

Senator Bragg

That's right. And as you know, Michael, the super system was built around the baby boomers, and good luck to them. They've worked hard. They deserve what they've got. But most baby boomers own a house. So for younger generations, we need to think laterally. And one of the key stats now, if you look at the super data, is that when people get to age 60, which is preservation age, and they can pull their super out, 15% of super is now being used to pay off mortgages. So you have to ask yourself, well, what was the point of locking it all up? Because on one hand, you've got people paying exorbitant super fees. The super funds charge $30 billion a year in fees. And on the other hand, you've got people being forced to pay interest to a bank. So I mean, we’re not here to run the country in the best interest of financial institutions, be they banks or super funds. So I think we're just going to have a bit more flexibility here in our thinking. And if there's a good cohort tested on, it would be on older millennials where the deposit hurdle is high and the biggest pool of capital they might have is super. But as I say, Michael, this goes hand in hand with other solutions. This is not a silver bullet to solve the housing crisis, but it is one thing that we should look at. And the only reason that Labor won't look at it because they're beholden to the vested interests of the unions and the super funds.

Michael McLaren

Yeah, well, that's true. I know that's the case. I mean, you mentioned that figure earlier, 15%.

So you're saying 15% of people when they reach preservation age cash out their super, and they use that lump sum to pay off the mortgage. So, okay, they own their home, and the family home is, pension asset test free, so it's a very sensible economic thing to do, but then they go on the age pension. So, yeah, what was the point of all that super?

Senator Bragg

So what was the point of super? That's right. So that's why one of the other policies we're looking at in the Senate Inquiry into Home Ownership and Retirement is whether we could allow people to use their super as a mortgage offset. So for example, if someone's got a $800,000 mortgage in Sydney, they've got a couple of $100k in super, they should be able to use that to reduce their debt and to get closer to owning their own house. You know, in the Liberal Party, we believe in home ownership, so that's why we're prepared to look at some of these creative solutions. As you refer, there are huge vested interests that will line up against these policies because there's a lot of money on the line. But, ultimately, I think the super system has done some good, but it is very rigid. And I just don't believe it's going to suit younger generations, perhaps in the same way that it did suit some of the older generations.

Michael McLaren

And, I mean, ideologically, again, this is probably where you're a bit different to the other side of the House, but look, ideologically, because superannuation is a compulsory payment, you can't dodge it. You know, I think that really opens up this argument about well, how should you be able to use and exercise your own money? I mean, if it was a voluntary scheme, well, then, okay, maybe we say, well, look, it's voluntary. So, if you don't want to put your money in there, you want to put your money into a home, well, then fine. We'll keep super for this purpose over here. But because it's compulsory, that does change the ball game a bit, doesn't it?

Senator Bragg

It does. And if you're a 23 year old and you've just finished uni, you've gotta pay a huge HECS debt, 12% super. It's very hard to get the money together for a first time deposit. So in other countries like Singapore, they have a super scheme, which is available for retirement savings, aged care, but also home ownership. So I think, we just have to look at it through the prism of what's going to work best for younger people in particular because I think most Australians would accept that it's the younger generations that we're most concerned about and their home ownership prospects.

Michael McLaren

Just finally then, Andrew, just on that finally, I mean, you know, there are some vested interests here as we said to say, oh, no, we can't have this, we can't do that. But, you know, take people's Self Managed Super Funds. Well, I mean, they're investing in real estate all over the place. You've got the super funds themselves, the big Industry Funds, investing in real estate. So, you know, I mean, ideologically, it's not that great a leap, is it, to then say people that might have money in a fund of some sort, that they could then repurpose some of that for their own real estate.

Senator Bragg

Well, Michael, your super can invest in any house except your own. So if you can make sense of that, then you're going better than me.

Michael McLaren

Yep. Good to talk. Let's see where this lands. I reckon it will be a bit of a policy issue heading into the next election. Andrew, thank you for your time.

Senator Bragg

Thanks for your time. All the best. See you, Michael.

Michael McLaren

All the best. Andrew Bragg, the Shadow Assistant Minister for Home Ownership.

[Ends]