Is owning your home better than super?

In one corner, the ‘Great Australian Dream’ of home ownership is built on intergenerational tales of financial freedom – and the emotionally charged memories of family gatherings and celebrations.

In the other corner, the superannuation sector presents a compelling case that contributing to super is the smartest way to build wealth and help safeguard your financial future.

But when it comes to laying a solid foundation for a comfortable retirement lifestyle, is putting your savings into owning a home a better choice than topping up your super?

Investment decisions are personal

Making decisions about the investments that are best for you is very personal – and a range of factors should be considered. There are positives and negatives to both sides of this coin, but weighing up what helps you feel secure and stable in retirement is a good place to start. If you don’t own a home by the time you stop working, then your superannuation will need to cover ongoing rental payments. But even people in stable accommodation need access to funds to pay for household bills.

To help you make up your mind, consider the following, and the time frames relevant to your own retirement planning.

1. Superannuation and property are long-term investments.
2. Corelogic research shows that the median dwelling value in Australia has delivered an annual growth rate of 6.8 per cent across the 30 years to March 2022.
3. Compulsory super in Australia was introduced in July 1992. In the 30 years since, according to leading data and research provider to the superannuation sector Chant West, the median growth fund has delivered an annual return of 7.9 per cent – a figure that is almost 2 per cent per annum ahead of the typical return objective. This median measurement includes four significant share market downturns: the 2002 ‘tech wreck’, the global financial crisis (GFC) across 2007–2009, COVID-19 in 2020, and the high inflation response of rising interest rates that began in 2022.
4. Whether property or super, there is no guaranteed return.
5. Home ownership is about more than money.

Why choose home ownership?

Access to secure accommodation, away from the volatile rental market, is a definite bonus for owning your own home. Plus, because the ability to enjoy your superannuation savings might seem a long way off for anyone a couple of decades away from retirement age, putting savings into home ownership offers a shorter-term solution for those who can afford to save for a deposit.

Why choose topping up your super savings?

As house prices continue to climb (despite rising interest rates), it’s easy to understand why the dream of home ownership may seem unattainable – and why topping up superannuation with every available dollar does offer a safety net of solid retirement savings.

If you’re wondering whether taking advantage of tax-minimising ways to top up super is the best way to create your own healthier post-retirement nest egg, exploring some pros and cons of superannuation versus home ownership may help your sustainable retirement planning.

Property investment/home ownership investment pros and cons:

• The psychological benefits of living in your own home offer non-financial rewards of security and safety that contribute to wellbeing.
• Home ownership investment protects you from share market volatility.
• Owning your own home also protects you from the sometimes humiliating uncertainty of the rental market – and the reality that, when each new lease ends, you may have to endure repeated stress and expense of moving.
• Renter affordability is worsening. Recent data from CoreLogic reveals that rents across Australia are 10.1 per cent higher than a year ago, with vacancies at record lows. With 650,000 migrants expected to arrive over two years, the biggest population rise in Australia’s history will continue to create rental stress.
• There are obvious social security and tax minimisation incentives for home ownership, with the fact that the Principal Place of Residence (PPR) is excluded from capital gains tax on personal income, as well as from asset eligibility tests for various social security pensions, including the Age Pension. 
• The Home Equity Access Scheme (HEAS, formerly the Pension Loan Scheme) enables homeowners to use the security of real estate to generate retirement income, with loan payments only required from the estate, or when the property is sold.
• If you own one investment property as your key investment strategy, the lack of diversification may put you at greater risk, should you have an issue with your tenant, or face costly house repairs. 
• Depending on where you buy property, real estate investments can be hard to sell quickly if you need asset liquidity.

Superannuation investment pros and cons:

• Superannuation in a balanced fund spreads that investment risk across cash, shares, bonds, and other alternative investment opportunities.
• High-performing superannuation investments can return greater profits than property in the long term.
• When it comes to eligibility tests for social security pensions, including the Age Pension, superannuation assets are included. That means a person with a substantial  super balance may not qualify for health and pensioner benefits, while someone with the same value of assets held in a PPR can.
• Although superannuation is promoted as having many tax advantages, the truth is that owning your own home has a low marginal tax rate. In fact, the only savings vehicle that offers a lower one than home ownership is pre-tax concessional super – but that’s limited to $27,500 a year. 
• Money locked in a superannuation fund isn’t easily accessible when you need it.

If you have the resources to choose between owning your own home or putting more money into super, the case for home ownership is a strong one. After all, as long as you’re in stable employment and watching your superannuation balance grow with each year of contributions, your super will still be there too, of course, even if the balance might not be as large as you hoped.

With a property owned outright by the time you reach retirement, you are protected from the uncertainty of the rental market, including what could be ongoing and hefty price increases. And, for many, that stability offers a value that money can’t buy.

Do you own your own home? Why not share your thoughts in the comments section below?

Also read: Boost super or buy a home: which strategy is best?

Disclaimer: The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.