Under the federal opposition's housing proposal, Australians could withdraw up to 40 per cent of their retirement savings - to a maximum of $50,000 - to buy their first home.
But modelling by superannuation fund collective Super Members Council found this would hike prices across Australia's five largest capital cities.
The median Sydney price would swell by $80,000, Melbournians could pay $70,000 more, costs in Brisbane would grow by $78,000 and house prices in Perth would increase by $86,000.
Super Members Council chief executive Misha Schubert said this would worsen the affordability crisis.
"We all desperately want more Australians to own their own home, but this idea won't achieve that," he said.
While investor Jonathan Ng acknowledged the inflationary effect, he told a Senate inquiry the financial benefits of home ownership would outweigh the costs to Australians' super due in part to its value as an investment.Â
When asked if such a policy would disadvantage young homebuyers who did not have significant amounts of super saved, Mr Ng said it was important for housing supply to increase.
However, Centre for Independent Studies' chief economist Peter Tulip says this will drive up demand and prices without addressing supply.
"Housing affordability is arguably our biggest social problem, you really don't want to be making it any worse," he told the Senate committee.
Instead, Australians should be given the choice to use their superannuation as collateral for their loan.
This would help first home buyers jump over the deposit hurdle without jeopardising retirement balances.
Superannuation would only be drawn upon in the event of foreclosure, which Dr Tulip said was "extremely rare".
The committee also heard tax breaks on superannuation were too generous and boosting the children of well-off parents at the expense of the rest of the population.
Less tax is paid on superannuation than any other form of income, resulting in "unsustainable" costs to the federal budget, Grattan Institute researchers Brendan Coates, Joey Moloney and Esther Suckling wrote in their submission.
Super tax breaks cost $45 billion per year and will soon exceed the aged pension, benefiting wealthy people who are able to use it as a tax minimisation scheme, the trio said.
"Two-thirds of the value of super tax breaks go to the top 20 per cent of income earners, who are already saving enough for retirement and whose savings choices aren't much affected by tax rates," their submission said.
"Superannuation should not be a taxpayer-funded inheritance scheme. Yet that is exactly what it has become in Australia."
The committee is required to deliver a report into the inquiry by the end of June.
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