Why should we choose between Super and a house?

Don't we have more than just those two options?

A man looking happy while holding up two little wooden houses.

Image source: Getty Images

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Some Monday mornings, I sit down to write, feeling refreshed, energised and philosophical.

Other Monday mornings, I sit down with proverbial steam coming out of my ears.

This morning?

Both.

I wrote on both Twitter and Facebook about the (reasonable) lionisation of the 'artist' and the (unfortunate) underappreciation of the 'craftsperson'.

(Spoiler alert: I love artists, but they are few and far between. We'd be better off celebrating and committing ourselves to craftspersonship.)

That was the 'energised and philosophical' bit.

The steam coming out of the ears?

Another misguided effort, by a government inquiry, to make housing 'more affordable' by letting people use Superannuation to buy a house.

Now, the easy (and tempting) option at this point is to engage in a long monologue of well-directed invective, aimed at those usual suspects.

And that would make me feel a lot better.

But given this is about you, our members and readers, and not me, I'll refrain, and set out my case a little more carefully.

Now, I'm going to assume that the vast bulk of us can see the problem with ever-escalating house prices.

A 24% increase, in 2021, is both unaffordable and unsustainable for those hoping to be able to afford a property.

Yes, I'm on the record as saying 'sticker shock' is less important than 'affordability', measured by repayments, so I'm staying away from the easy tabloid (and wrong, at least for the most part) assessments of 'house prices up = bad'.

But – and there's a but – there are a couple of important reasons to believe that housing is off-kilter, right now.

If you believe, as I do, that house price gains are a logical result of the 'financialisation' of housing, then you'll agree with me that lower interest rates will lead to higher prices, at a given level of repayments.

If the maths isn't instinctive for you, try this: If you can afford to pay, say, $750 per week in repayments, a quick look at a mortgage calculator will show you that you can afford to borrow much more at, say, a 3% interest rate, compared to a 5% interest rate.

Which, funnily enough, is precisely what's happened over the past decade: falling interest rates have fuelled higher house prices.

Now, that's not a surprise. And in the investing world, not even a bad thing. It's just the way the maths works. Share prices will be higher – all else being equal – when interest rates are lower, and lower (again, using the same assumptions) when interest rates are higher.

If – and I think we can say 'when', using the past tense – housing became financialised, it moved from being priced predominantly as 'shelter' to predominantly as a financial asset, we should expect more extreme moves, correlated to interest rates.

And – and this is the kicker – in both directions.

Is it reasonable – logical, even – for a financial asset to increase meaningfully in price as rates fall? Yep, sure is.

And is it reasonable – again, logical – to expect house prices to run the very real risk of falling, maybe even meaningfully, as rates rise?

Again – and unfortunately for those buying today – I think the answer is 'yes'.

Not guaranteed, of course, because people aren't robots. But possible. I think even probable.

Now, is that the market we want young people to be buying into, today?

I don't think so, which is part of the problem.

Second, and more immediately, the other problem with fast-rising house prices is the equally fast-rising deposit requirements.

If you had to save, say, $150,000 for a deposit at the beginning of 2021, that number had ballooned to $186,000 by the end of the year.

And stamp duty increased at around the same percentage rate.

Which young person, without help from the Bank of Mum & Dad, can save that fast?

Hint: it rounds to zero.

So, I'm going to assume you're with me on the contention that house prices – as a function of a healthy society, not just as financial assets – are a problem.

So is it a good thing that governments are looking at that very problem?

You bet.

And, given the growing lump sums in Super, logical, even a good thing, that people should be allowed to use that money for a deposit?

No. Bloody. Way.

See, I want you to imagine an aircraft, in significant difficulty. It's down to one engine, and the plane is too heavy to keep flying on just that single engine.

The aircrew realise they have to jettison some weight.

They look around.

There's a cargo hold full of freight.

The seats are heavy, and 75% of them are unoccupied.

It's carrying way more fuel than is – even conservatively – needed to land.

They radio the ground for help, and the government announce a swift enquiry, which reports back in a matter of minutes:

"We think you should detach and jettison the landing gear" is their recommendation.

There is stunned silence. The committee's recommendation goes on:

"Clearly the plane is too heavy. If you toss the the landing gear out, you can keep flying"

"Isn't that better than crashing?"

Of course, given that binary option – keep the wheels attached and crash, or jettison them and keep flying – no sane person chooses to crash.

But then the junior third officer pipes up: "Umm, Captain… don't we have more than just those two options?"

"Couldn't we, maybe, consider other choices? We have a lot of potential alternatives, and some smart people. I'm sure the choice isn't just 'crash now, or abandon the landing gear!"

Let's come back from analogy-land.

I tweeted about the housing versus Super issue on the weekend.

A couple of my correspondents suggested that retiring with a house and less Super is better than having more Super and without a house to call one's own.

And hey, questions of the relative returns of each notwithstanding (and they should be factored in!), I understand that point.

But…

Surely, I suggested, raiding Super to make housing actually affordable is a false binary choice.

Maybe… just maybe… there are some other options we could put on the table?

And in the world of policy-making, where there are literally dozens of different things a government could do, surely raiding Super isn't the best way to fix the problem of housing affordability?

Because not only is a further cash injection into the housing market actually likely to push prices up (which should be enough to kill the idea, anyway), but making people choose between a house and a comfortable retirement has to be a pretty good sign we've let policy settings get way out of whack.

See, I think we should aspire to be a country where both are possible for the vast majority of people.

We have one of the highest levels of both average wealth and average income in the entire world, and we can't find a way to solve both problems simultaneously?

And our government would give up on that effort without even trying, just inviting people to choose between expensive housing and comfortable retirement?

Seriously?

And in case you're wondering, the housing affordability issue isn't party-political.

I see no good options being put forward to fix it from either side.

But, equally clearly, it's also fair to say that some on the Treasury benches are actively pushing the 'raid Super to buy a house' line, and I'm not sure I've heard anyone on the other side of the house doing the same.

(I say that not to make a political point, per se, but I'm also not going to pretend the 'raid Super' idea is a bipartisan one. You don't need to be biased to simply report the facts. But equally, if I've missed it, let me know.)

So where does that leave us?

Well, we can swallow the line that 'Housing is better than Super', as if we have only a binary choice.

We can, to return to our analogy, believe that either keeping the landing gear and crashing, or jettisoning the landing gear and not crashing — until we try to land, that is — are our only two options.

Or, we can say, loudly and clearly, that we think both should be fundamentally accessible and achievable for the vast bulk of us, in a prosperous and caring country.

Put me down for the latter.

We've gotta do a better job of helping our young people afford housing, should they want it.

And we've gotta say, full-throatedly, Hands Off Super!

With all of the policy options available to our parliament, I don't think it's too much to ask.

Fool on!

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Meta Platforms, Inc. and Twitter. The Motley Fool Australia has recommended Meta Platforms, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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