The downside of government handouts for property
Government assistance and incentives may have a downside in the long term.
Free handouts of government money to buy homes? How could anyone refuse?
But while money has always made the world go around, it certainly can't buy long-term happiness, say a growing chorus of property experts.
And the establishment just last month of the latest housing grant, the Regional Relocation Grant, which provides a one-off payment of $7000 for people moving out to regional areas, has reignited the debate over the wisdom of subsidising housing.
Certainly, generous housing grants have been well received by first-home buyers in the short term, helping them get a toehold in the market. They also proved healthy for the economy in general, as part of the federal government's GFC stimulus package, which the World Bank acclaimed as helping us avoid an economic downturn.
''But I'm a firm believer that with such grants, only play that card when you really need to,'' says the senior economist at Australian Property Monitors (APM), Andrew Wilson. ''It's really the ace in the pack. And I don't think we have a need, really, for ongoing grants and stimuli.''
For experts are now warning that property grants in the long term might cause more problems than they solve, in terms of pushing prices of cheaper properties artificially high, increasing the risk of an interest rate hike and, in turn, contributing to a fresh slump in market demand generally.
''The best way to protect housing is to have less government involvement, rather than more,'' says the managing director of SQM Research, Louis Christopher. ''Meddling is bad. The market is cyclical but interfering in that can make the falls more pronounced and more extended.''
Many now believe that the influx of first-home buyers into the market resulted most of all in a sharp rise in prices. From January 2009 to June 2010, median house prices in Sydney rose 20 per cent, with most of that increase being in the bottom end of the market, with homes about $400,000, according to APM figures. That coincided with a surge in home loans for first-time buyers, at 47,449 during 2009, 49 per cent up on the previous year, according to Bureau of Statistics data. ''That would suggest most of that price growth is from first-home buyer activity,'' Wilson says.
Others agree. ''I have a suspicion that the grants tend to push the price of a property up by the value of the grant,'' says Intelligent Finance mortgage broker Justin Doobov.
''But … they have helped people get into the market by adding to the deposit they need.
''It can be a problem, however, if people can't service the loan afterwards because they don't have enough for the repayments.'' Governments like them
Any element that leads to price rises at the lower end of the housing market is undesirable in terms of the current unaffordability of homes, believes a senior research analyst at RP Data, Cameron Kusher. ''If anything, the grants worked too well and resulted in too many people … competing for properties so prices rose,'' he says.
''But property transactions form a very important revenue stream for state and federal governments, so that rose as more people came into the market. Also, a lot of demand was brought forward as a result, so that's hurt the market down the track, when there wasn't that demand left. I think there's now better things the government could be doing.''
The federal government, however, says it's important to help first-time buyers. The Minister for Sustainability and Communities, Tony Burke, says: ''The government provides the first-home buyer grant as a way of helping people realise the dream of home ownership and we're providing more incentives for young people … through First Home Saver Accounts.''
Similarly, the NSW Treasurer, Mike Baird, feels the relocation grant will be of enormous benefit in helping families into homes outside the city areas. ''The Regional Relocation Grants will provide a very real benefit to families relocating within NSW, while driving economic growth in regional areas and relieving congestion pressures within Sydney,'' he says. Build it and they will come
Kusher, like many, feels the government would do be better to encourage the construction of new homes, both in Sydney and in regional areas, to increase the supply of housing rather than inflating demand. With a rise in supply, prices could prove much more affordable.
The chief economist for the Housing Industry Association, Harley Dale, is on side. ''And encouraging new-home building isn't just about increasing supply, it also has a considerable multiplier effect in terms of jobs and the construction and manufacturing industries,'' he says.
That policy would also win the vote of the executive director of the Master Builders Association of NSW, Brian Seidler. ''Housing grants have proved to be good for the building industry but incentives for people to build housing is what's needed now.''
The chief executive of the Urban Taskforce Australia, Aaron Gadiel, agrees. ''Some of the grants don't serve any useful public-policy purpose but the ones that make a difference are the ones targeted at generating new homes, like The New Home Buyers Supplement and stamp duty concessions if you buy off the plan.''
Supply is where the government should be focusing, Wilson says. ''We need to increase supply, be more proactive on high-density housing and have more choice, which will put less pressure on prices.'' Saving Grace
The $7000 First Home Owner Grant didn't persuade Stefan Charteris to buy his first house but it did bring forward his decision to enter the housing market. ''It certainly saved us an extra month of saving,'' he says.
''But it didn't really enter our decision-making. We'd already decided to buy.''
The grant did help, however, when environmental consultant Stefan, 39, and his environmental scientist partner, Jessica, 26, found a two-bedroom freestanding Federation house they loved on Warburton Street, Marrickville, being sold by LJ Hooker Newtown agent Poh Ling Ee.
It went to auction before their finances were quite ready but they were able to go back and negotiate the price down from more than $700,000 to $650,000 when it was passed in.
''It was nice to have the grant, even though we didn't really see it; it went straight into the mortgage,'' Stefan says. ''And although the house is noisy, just by the train line, at least we're now in the market!'' The history of government housing support
In the 1890s, the financial system was reformed after a depression to allow the establishment of state banks and credit foncier loans to help people buy homes, says Professor Tony Dalton, of the RMIT Australian Housing and Urban Research Institute Research Centre.
After World War I, land grants were given to soldier settlers under the Homes For Heroes program and war service home loans were introduced. The new Torrens title system also enabled the easy subdivision of land, supervised by government.
The first cash housing grants were introduced in 1964 by the Menzies government. First-home buyers were given £2 for every £1 they saved, up to a cap of £250. Housing loan insurance was also provided to make it easier to borrow and buy.
The measures were abolished in 1973 when Gough Whitlam was Prime Minister and mortgage tax deductions introduced. In 1976, Malcolm Fraser replaced them with a Home Deposit Assistance Grant, with the largest possible grant capped at $2500.
The Hawke government brought in the means-tested First Home Owners Assistance Scheme instead in 1983, with a maximum grant of $7000 later reduced to $6000. It was ended in 1990 but brought back in 2000 at $7000 as the non-income-tested First Home Owners Grant by John Howard as part of GST compensation.
Under Kevin Rudd, the First Home Owner Boost of $7000 for established homes and $14,000 for new ones was added in 2008 among measures to beat the global financial crisis. The boost was reduced to $3500 for existing homes bought from October 2009 and $7000 for new, and phased out at the start of last year.
"But the future doesn't lie with more first-home owners' grants for housing affordability," Dalton says.
"I would argue that preserving the stability of the housing industry is now more important." What's now on offer?
First-home benefits of up to $24,990 are available on homes costing $835,000 and under, being the $7000 First Home Owner Grant (FHOG) and a stamp duty exemption of up to $17,990 under the First Home Plus Scheme (NSW).
First Home Saver Accounts are a special-purpose account more like a term deposit. The government will make a contribution equal to 17 per cent of your personal contributions for the financial year. Go to apra.gov.au for more information.
Transfer (including stamp) duty exemptions are available for certain new-home purchases up to $500,000 (concessions exist for homes between $500,000 and $600,000), off-the-plan purchases, and vacant land purchases on which a home will be built within a specified time. To calculate total concessions on a home between $500,000 and $600,000, multiply the purchase price by 0.2249 and subtract $112,450. (NSW)
There is also a specific exemption for eligible seniors purchasing a new home as their principal residence.
The Regional Relocation (Home Buyers Grant) Act 2011 has just come into effect for the next four years, providing a one-off payment of $7000 to assist with the cost of relocating from a metropolitan home to a regional area.
Posted by Susan Wellings - The Age on 27th August, 2011 | Comments | Trackbacks
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