Two major distortions have developed in Australia's capital markets. One is the overblown housing stock, which is travelling at over $3 trillion. The other is Australia's superannuation pool, which, at over $1.8 trillion, is worth more than the stock market. Both are dominating the financial profile of Australia. The growing super pool is starting to mean that too much capital is chasing too few options. And the housing market has been the major reason for Australia's soaring private debt.
So the obvious conclusion would seem to be: 'Don't combine the two.' But that is exactly what the Treasurer, Joe Hockey, seems to be inclined to do, as the AFR reports:
"Mr Hockey has continued to press for a debate on more flexible superannuation that could be used for education costs and house deposits for first home buyers even as former treasurers Peter Costello and Paul Keating urged superannuation to be kept to provide retirement savings.
"I am most concerned about the accessibility of housing for first home buyers," Mr Hockey told ABC Radio on Wednesday.
He said housing stock supply had not kept up with demand so that the average income to housing cosratio had increased from 2.8 per cent in the mid-1980s to 4.1 per cent today.
"When I speak to young people and their parents and grandparents, they are very frustrated," he said, adding it was difficult for young people to save between 5 and 10 per cent deposit on a deposit.
And if they have university loans outstanding as well, Mr Hockey said, it made it more difficult to save.
The fact that life expectancies will extend into the mid-90s by 2055 meant it was "obvious" superannuation might need to be more flexible and "act as a shock absorber during their lives because it is their savings," Mr Hockey said.
Two previous Treasurers, Paul Keating and Peter Costello, think it is a poor idea:
But Mr Hockey's predecessor Peter Costello said the idea of allowing early access to superannuation had been around for a long time and "every generation thinks it invented the wheel".
"We went through all of this back in the mid 90s," Mr Costello told ABC's 7.30 Report on Tuesday.
"We had a look at it. We decided - because we thought superannuation should be for retirement savings - we decided not to allow superannuation to be available for housing."
The most likely outcome of allowing people to use super to buy a house is that it will only inflate prices further. Certainly various first home buyer grants had that effect.
Although weight of money arguments are always perilous, it seems probable that there will be too much money chasing too few investments -- at a time when too much money is chasing too few investments. It is not a good mix.