Define “popular”

Another bit of vacuous advocacy for the public-money-wasting and debt-encouraging “first home-buyer’s grant” from a newspaper company dependent on the favour of real estate agents:

Home buyers grant smaller, but still popular

Australians are continuing to take up the federal government’s first home owners grant in droves, undeterred by its October reduction.

Well, they’re not turning down free money on which the people against whom they’re bidding are also relying, obviously.


You’d take it – but you’d probably rather the couple bidding you up hadn’t been given it as well.

But that doesn’t mean it’s “popular” – they’d be vastly better off if it didn’t exist at all. They wouldn’t be forced to plunge further into debt because of the extra borrowing power it gives their opponents. Many realise that. And many of us will vote for whichever party promises to get rid of it.

Those of us who aren’t real estate agents, anyway.

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53 responses to “Define “popular”

  1. Jeremy
    You seem ignorant of the fact that outside of Melbourne most real estate is not sold at auction and the effect you complain of is far less significant.

  2. “And many of us will vote for whichever party promises to get rid of it.”

    The LDP 😉

  3. I think the Greens want to get rid of it too. I’ll check.

    Iain – are you seriously suggesting that giving free cash for entry level homes doesn’t inflate the market by more than that amount?

  4. Can you suggest an alternative strategy for providing affordable homes?

  5. Reducing incentives for people to use housing as an investment instead of TO LIVE IN. Things like the fact that tax on income gained from property is half that of income gained by actual work.

    First home buyers are forced to compete with those buying investment properties they then rent to the unsuccessful first home buyers. And given how inflated that housing market already is, and how much equity the investors therefore have to rely on, it’s not a fair fight. The upshot is investors with many houses; young couples with none.

  6. To add to Jeremy’s point, those investors looking for a quick turn-over are happy to spend a lot more than first home buyers. If you’re planning on selling the place for a profit in 12-18 months time, then the initial outlay isn’t such a big deal. It’s a bit different for someone planning on actually paying the mortgage off while living in the place.

  7. At last. Somone with a bit of common sense. I’ll have to visit this site more often.

  8. Jeremy
    I think that you have a far to Melbournecentric view of the real estate market because once you get out side that part of the country many real estate transaction actaully have some haggling involved between buyers and sellers That is certainly the case up here in Sunny Queensland.
    I also think that you need to give more consideration to the fact that in the cities like yours there are more people wanting to buy than there are sellers and that naturally has an effect on the price.

  9. Obviously. But we were talking about the FHOG.

  10. The single biggest driver leading to the purchase of housing as an investment is negative gearing.

    Kill negative gearing and watch house prices tumble!

  11. Quite right Jeremy. There is nothing more contemptible than encouraging bourgeois behaviour. If the state is going to subsidize housing, it should be in the form of communes, council estates and collective farms.

    How on earth are the masses going to learn to love big brother if they don’t feel dependent on the state?? Once they get their own houses they will start thinking for themselves and, Gaia forbid, taking responsibility for their own lives!!

    But if we stop helping young homeowners, they will not have the same comparative advantage and less of them will attain the decadent middle class lifestyle that comes with home ownership. They will become selfish, thinking of endless ways to improve their own circumstances to the detriment of state power. They may then even vote in their own self-interest. Oh the horror, the horror of it all.

  12. We certainly should help young homeowners. My point is that the FHOG does the opposite.

  13. Mondo is right. Negative gearing is a larger problem it is a distortion that advantages investors.

    FHOG is a distortion that helps first-time homeowners. The advantage they get from the grant is greater than the marginal increase in house prices that may arise because the grant is only available to a relatively small number of people in the market for homes..

  14. No, it doesn’t. At the entry-level at which most first-time homebuyers are competing, they’re competing with each other (what they could’ve paid before, plus the FHOG, plus the extra the bank will lend them using the FHOG as a deposit), and with investors whose equity has been increased by the inflationary effect of the FHOG.

    The FHOG increases the price of entry-level homes beyond the value of the FHOG. This is not to first home buyers’ benefit.

  15. They are also competing with people buying investment properties. Cheaper houses provide good rental returns and an excellent opportunity for investors. The FHOG helps people buying their first homes to compete with investors.

  16. Not really, because it’s inflated the investors’ equity as well.

    It helps first home buyers get further into debt to the benefit of those who owned houses before the boom.

  17. How does FHOG increase investor’s equity?

  18. Jesus fucking christ, Jeremy, why do you keep this retard on board:

    I think that you have a far to Melbournecentric view of the real estate market because once you get out side that part of the country many real estate transaction actaully have some haggling involved between buyers and sellers

    Firstly, prices are high in every major city in the country*; secondly, negotiations occur in Melbourne as they do everywhere else, but that doesn’t mean that prices are not extremely high when compared to average income, etc.

    Mondo is right. Negative gearing is a larger problem it is a distortion that advantages investors.

    FHOG is a distortion that helps first-time homeowners.

    SB, please cite a single piece of evidence that the grant ‘helps’ first-time buyers. I’ve seen several reports that say it’s inflated prices. Based on very modest leveraging ratios, a $14k grant will get you $140k worth of mortgage. But you and Mondo are correct about negative gearing – the rate of appreciation of real estate is now vastly higher than putting savings in the banks, so investors have every incentive to not save, lend lots of cash, and wait a relatively short time for a decent amount of equity. Far from only benefiting ‘mum and dad investors’, this system seems to favour shysters, speculators and ponzi artists.

    * Note grammatically correct use of semi-colon.

  19. THR, no doubt FHOG causes some increase in house prices. The question is why, given it is available only to small section of the market, would it be disproportionate to the benefit to the small section of buyers who are entitled to it?

    And what government is going to be willing to do anything which will significantly reduce house prices? That could cause more lenders to foreclose and start a downward spiral in prices. They may ease off on FHOG, but will they really tackle negative gearing?

  20. Travis Bickle

    The question is why, given it is available only to small section of the market, would it be disproportionate to the benefit to the small section of buyers who are entitled to it?

    I’m not sure this is ‘the question’ at all. If first-timers are buying at vastly inflated prices within the $300-700k range, this is going to have a flow-on effect to those buying their second homes, and so on. It almost certainly has very little effect at the top end of the market – this category dropped this year whilst everything else rose in price.

  21. “The question is why, given it is available only to small section of the market, would it be disproportionate to the benefit to the small section of buyers who are entitled to it?”

    Because of the fact that banks will lend someone nine to ten times as much as they’ve saved.

    “And what government is going to be willing to do anything which will significantly reduce house prices? “

    One that cares about social stability? (For example, wider home ownership reduces crime.)

    And reducing price increases to no more than CPI would be a good start.

  22. SB, I doubt any government will do anything about negative gearing. However, there’s a good argument there for the government to try and gradually deflate the housing bubble. Failure to do so will mean that the inevtiable crash is all the more painful.

  23. I still don’t see how helping one small segment of the market causes a proportionate increase across the whole market.

    I doubt Rudd really wants to chill the housing market. No one will thank him at the polls if they drop $100k or more on the value of their primary asset.

    The bursting of the bubble will only happen if either the incentives are drastically reduced, or if the lenders are imprudent, and haven’t learned the lessons of the sub-prime debacle.

    Removing the FHOG will remove a lot of first time homeowners from the market. That may be good for the market, but it won’t help them.

  24. “I still don’t see how helping one small segment of the market causes a proportionate increase across the whole market.”

    It wouldn’t. But they’re NOT helping “one small segment of the market”. They’re helping build equity for existing home owners, and they’re helping drive future generations even further into debt.

    “I doubt Rudd really wants to chill the housing market. No one will thank him at the polls if they drop $100k or more on the value of their primary asset.”

    Well, those trying to break in to the increasingly unaffordable housing market might.

    “Removing the FHOG will remove a lot of first time homeowners from the market. “

    No, it won’t. They’ll still be there – they just won’t be forced to go so far into debt to do it.

  25. “The LDP”

    Please. No. NOT them.

  26. getting rid of the FHOG is a good start, but doesn’t address the underlying reason why our property prices are so high

  27. Listen to the “Renegade Economist” on 3CR radio on Wednesday afternoon / evenings and they’ll make things very clear as to why property prices are so (unfairly) high.

  28. The fact that there are people using the FHOG to enter the housing market demonstrates that not all of the benefit is passed on in higher prices. If that was the case then those already buying would do so, and the new entrants would not be advanced in the queue.

    Also, if the impact of increases is felt up the chain, increasing equity for investors, then the effect must be spread over more than just the entry level. This contradicts the idea that the FHOG is passed on entirely, because first home buyers are restricted to the lower end of the market.

    Can it be both fully absorbed in the lower end of the market, and also provide additional equity to investors (who are presumably higher up the home price ladder)?

  29. Can it be both fully absorbed in the lower end of the market, and also provide additional equity to investors (who are presumably higher up the home price ladder)?

    Short answer – yes. Investors aren’t necessarily at the higher end of the market.

    Another problem is that the FHOG encourages private debt. If the economy falls into recession, this private debt (currently huge in Australia) will take us to where Ireland and Michigan are at present.

  30. Private debt is an important part of growing up and being socialised into consumer society. It is by private debt that we seek to improve our position, and it is private debt that shackles us to the gears of productive enterprise. Otherwise we might be tempted to dream of doing things other than turning up for work. Things we might actually enjoy.

    Private debt is a manifestation of our dreams and aspirations, at least at a practical level. Sadly the stress it brings also constrains us, keeping us focussed on the practical and distracted from all but the most mundane pursuits.

  31. thevoiceofreason

    Imigrants to Australia buy your house, imigrants to Europe clean your house. Supply and Demand the reason assets such as houses rise and fall. Incentives from govenments (FHOG and negative gearing) to increase demand in a supply short market is maddest in the extreme and simply cretes an unsustainable housing bubble for investors in this passive asset.

  32. In my experience, investors and first-home-buyers generally compete with both each other and investors for properties, at least in the inner-city unit market. That doesn’t mean that FHOGs are a good idea – Jeremy is right, they simply bid up the price. And, Iain, both NSW and Vic are large auction states. I bought my place in a private sale, but that is the exception south of the Tweed. (And, of course, the ‘bid up’ factor is not limited to auction situations.)

    The problem with debates like this is that there are so many individual policy issues at play. If one wants to seriously reduce house price appreciation, here is my potted list of proposals (in order of importance):

    1. Reduce the barriers to supply, not just outer suburban land releases but also urban consolidation and infill – i.e screw the councils;

    2. Reduce Immigration sharply;

    3. Eliminate FHOGs

    4. Break the building unions to reduce the construction costs of city flats; and

    5. Relax building requirements such as five star energy efficiency.

    The ‘negative gearing’ furphy is not listed here deliberately. Frankly, the principle of deducting costs against incomes for tax purposes is fine, and housing affordability is not going to be solved by some silly, simple tax tweak.

  33. Break the building unions? You mean make criminals out of people exercising fundamental rights like the right to silence don’t you?

    Exercising the right to silence in a civil matter I might add.

  34. It’s a furphy that the housing bubble has anything to do with building unions, or with construction costs more generally. Many of the most inflated areas are selling old houses. New houses can be picked up in outer-lying areas relatively cheaply, depending on the fittings and materials. It’s also complete bullshit that energy efficiency is to blame for the housing bubble.

  35. Well, I don’t necessarily mean ‘break’ using the ABCC and its coercive powers. I mean break using whatever means necessary. Certainly, In Victoria and WA, where construction costs are so high, that has to be on the list.

    Though I do note that the ABCC powers are equivalent to those held by agencies such as ASIC, so we are not talking about unprecedented stuff.

  36. Lack of decent public transport infrastructure to the outer suburbs is part of the problem, though – young couples who need to work in the city have their options increasingly limited.

  37. Kill off FHOG and negative gearing and you will see a market that will fall back to fair value. Why australians put such a priority on their house being the corner of their wealth is beyond me. Other asset classes have historically outperformed residential property but we seem to have had in the last 15 years a focus on residential property as the way to finance your retirement. The GFC scared the crap out of the average retail share investor and they ran like the herd that they are. Buying good quality shares at the height of the GFC crisis has probably set me up for life but I still will not pay the current market rates for residential property (to live in mind you) because I know a 30% premium above 80 year averages is like the sharemarket in late 2007 – a bubble waiting to burst. FFS if I wanted to move to the U.S. I could get my dream home for next to nothing (relatively speaking) in some parts of the country. We really need to remove goverment intervention in the housing market (ain’t done much good so far) and address the supply side of the equation. Just let the market operate as a market….get the do-gooder government out of it.

    It won’t happen though – I have now lived in several electorates where the local federal member has campaigned for no additional land releases FOR THE EXPRESS PURPOSE OF KEEPING THEIR CONSTITUENT’S HOUSE PRICES HIGHER!

  38. Certainly, In Victoria and WA, where construction costs are so high, that has to be on the list.

    Where’s the evidence that construction costs are high? And, further, where’s the evidence that it’s construction costs that have contributed in a serious way to the housing bubble?

  39. I should note that in my previous comment, the last bit was not a interpretation of their policy – they put it on their election flyers!!

  40. I guess if the price of buildings is about the union movement, what price do you put on safety?In Perth where pre-fabricated buildings seem to be all the rage at the moment, approx five yrs ago, they were losing about one building worker a week due to lack of safety erecting these bloody things..

    As per usual the unions had to drag the building company’s to court to get the safety provisions changed and laws enforced.The housing association and the other organizations that control the building industry, that’s their unions so to speak, said it was the workers and unions fault, now dig this, it was due to union work practices.

    As Jeremy has pointed out, it is the government grants, plus, outrageous fees charge by governments in stamp duty, and real estate agents fees.These unscrupulous toads prey on young kids and other working class people on low incomes, and have all the sincerity of a used car salesman. The costs just spiral up, and the young people are paying usury interest on loans you have to be a CEO to pay back.

  41. I don’t think stamp duty has too much to do with it – if the government cut stamp duty, prices would simply increase to absorb the discount.

  42. “I don’t think stamp duty has too much to do with it – if the government cut stamp duty, prices would simply increase to absorb the discount.”

    Possibly, however, in Perth stamp duty is I believe the highest in Australia.It is at Ned Kelly status.I am not convinced it has the same effect as the government grants.Although I do take your point.

    As an aside, the market here is being flooded with investor properties, it is having the effect of lowering prices here some what.

    At the end of the day houses are tooo bloody expensive, and how young married couples or any couples for that matter service these loans is beyond me.I hope it doesn’t end up like other parts of the world where renting is more the norm.

  43. Renting wouldn’t be so bad if there was more security in it and the prices didn’t continue just to go up and up.

    I purchased a home last year but prior to that adored renting for a decade. The thing with finally drove my partner and I to buy was the third consecutive rent hike in the shortest time legally allowed. If people were able to treat rental places like their homes then a lot of the social benefits of homeownership would fall into place.

    Investment houses have their place and not every 20 yr old wants to be buying a house

  44. I see housing as a right of people to shelter, and not as cash cow for investors.Of course not every 20 yr old wants to buy a house, however, that logic shouldn’t be a factor in the pricing structure.Housing should be affordable for all people, but then I am a socialist so any argument that is based on anything else but equality and fairness is just bullshit.

  45. My point was if you increase renters’ rights and feelings of securities you would remove one big reason that people choose to buy a house (taking some pressure off demand).

    Increased rights might also increase the quality of investor and those looking for the quick buck will invest elsewhere, rather than playing with other peoples homes.

    Fighting for home ownership doesn’t make me think of socialist ideals.

  46. People don’t just buy houses for security and other non tangible reasons.A house is a home, that is usually, well in my case anyway passed down to the children so they can have an easier time of it in the future.It allows you to make changes to the structure , over capitalize if that’s your want, and the investment will stay in the family, not ending up financing some investors yacht.

    I am lucky enough to own mine, not having to pay rent or a mortgage gives me the opportunity to pursue other activity’s outside of work.

    I wouldn’t relish paying private rent as a pensioner, unless of course it was state housing, which is still reasonable against private..

    I appreciate you can’t take it with you.

    Owning your own home fits very much into the “socialist ideals” it is one of the main gains of the working class over the last fifty years, along with other luxuries like food, clothes, health care, and a decent education.

  47. GaryM, how does home ownership fit into the socialist ideal? Socialism argues against private property, does it not?

    I have been thinking about this taxation question. A reasonable measure may be to limit the extent to which mortgage interest could be deducted from taxable income. Specifically, the government could restrict interest deductions to amounts of interest no greater than the gross interest earned on the property in that year. Therefore, one could not deduct more in interest than earned in gross rent.

    While I don’t generally favour changing taxation laws for any old social policy imperative – anyone who has actually seen the Income Tax Assessment Act 1997 would understand why – a targeted, limited, simple measure like that may do some good.

    It won’t in-and-of itself solve the affordability problem, though. The largest proportion of buyers in the market, and the demographic most likely to lift prices to avoid ‘losing’ a property, are owner-occupiers.

  48. AdamCMelb, I am a “”Socialist” not a “Communist” I appreciate the subtle differences are lost on most people, but there you are.Socialism like capitalism, means many things to many people.

    I mean take some of are larger manufacturing industries, they like to capitalize the profits and socialize the losses.As for private property, I will consulf my copy of “Das Kapital”and get clarification (: A subject for another day No?

    What ever the reasons and for mine, high costs for settlement fees, stamp duty, and agents fees are not helping.And I don’t have a problem with investors per se.What I do have a problem with is, them making them selves rich being propped up by tax payers who can’t afford what they’re investing in.

    All the rest is just chatter.

  49. GaryM, how does home ownership fit into the socialist ideal? Socialism argues against private property, does it not?

    Actually, it was an anarchist (of sorts), Proudhon, who first argued that ‘property is theft’ (though this view has several antecendents in the West, including in Christianity).

    Some forms of socialism (and other radical political philosophies) do not oppose markets, and therefore do not oppose private property. Other forms do oppose private property, but first and foremost with respect to the means of production. It is therefore not against the tenets of socialism or any other radical philsophy to support workers having their own homes, nor to support higher standards of living for workers.

  50. “It is therefore not against the tenets of socialism or any other radical philsophy to support workers having their own homes, nor to support higher standards of living for workers.”

    Thank you Travis you put it more eloquently than my good self.Socialism has many faults and anomalies, but, I will always console myself with this unegotiable fact.Most of the worlds intellectuals, scientists, musicians, poets, writers, and the other people of good will are of the left bent.We have our share of homicidal maniacs and other social mis-fits to be sure, but on the whole the good outweighs the bad.

    What’s all that got to do with cheap housing ?S.F.A. It just reminds me why I am a lefty.

  51. I don’t have any trouble with the difference between communism and socialism. I just think that it was a misplaced to bring in the reference to this discussion.

  52. Kat, politics is what this blog is all about.politics is the life’s blood of what we are, and where we are going as a society.It effects housing as it does the price of sardines.

  53. Pingback: Cheering a problem « An Onymous Lefty

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