The government’s announcement that they are injecting $1.5 billion into boosting the First Home Owners Grant looks like bad policy to me, regardless of the wider economic situation. If that amount of money can be spent rapidly to boost housing numbers, it should be put into boosting public housing stocks, or else into the new National Rental Affordability Scheme. The Real Estate Institute has already said the price of houses will go up as a result, by around about the same amount as the grant. Why spend $1.5 billion dollars of taxpayer money to push up the price of housing? There may be downward pressure on house prices in some parts of Australia, but it is from a seriously overvalued level. We should try to let the air out of that bubble slowly, not use public money to keep pumping it up, especially when there are still so many problems with housing affordability in other parts of our housing markets.
If the looming economic conditions are as bad as it appears, then I don’t have a problem with the idea of a major injection of funds, such as the government has announced. The one-off payments to carers, pensioners and family tax benefit recipients will provide a significant spending boost at a time of economic contraction.
But the First Home Owners Grant is tilted towards higher income earners, and serves mostly as a market distortion that leads to the overvaluation of housing. Channelling more money towards better off Australians to put into an asset which is still overvalued doesn’t seem like a very good idea to me, no matter what the state of the economy. The worst problems with the continuing housing affordability problems in the economy relate to high private rental and long waiting lists for public and community housing. Extra money should be put into tackling these problems, not spending even more public money to further distort the housing market. We already spend tens of billions of dollars doing that already. See Table 4.2 from this Senate Committee report from earlier this year. The Committee also made the following assessment:
The combined total of capital gains tax arrangements, land tax exemption and negative gearing arrangements is estimated to be in the order of $50 billion per year. That reflects against the $1½ billion in the Commonwealth–State Housing Agreement and the $1 billion spread over four to five years proposed for the new National Rental Affordability Scheme and the Housing Affordability Fund. These tax concessions also mean that the overall support to wealthy homeowners is greater than that to low income renters.
ELSEWHERE: John Quiggin isn’t so keen on the expansion of the First Home Owners Grant either (and nor are many of his commenters). George Megalogenis gives some history on these type of handouts and says it won’t make housing more affordable.
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They’re doing it so they look like they’re doing something. In the same light as Grocery Choice or Fuel Watch they are more keen on being able to say they’re doing something than actually doing something… or admitting there’s nothing much they can do.
I agree with Andrew, this will only push prices up and not help people it indended for. When the First Home Buyers grant was first setup it was a good thing that helped many people buy their first home, but to continue now with the evidence that it will push prices up again does not sound like a thought out idea.
What really worries me is just how terrified our government appears to be – A massive interest rate drop and more coming – Please borrow, please buy houses (even though the prices already unaffordable), please prop up the building industry and all the allied businesses and jobs. Unprecedented pre Christmas handouts to the people most likely to spend them – Please prop up our retailers and all the jobs that hang off them. Wiser heads than mine have obviously advised our government to be very frightened to take a wide range of drastic actions. I just hope our banks have learned from America’s subprime saga and don’t lend to anyone who doesn’t have a REALLY secure job and who can ride out any drop in house prices that might come.
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