Memo to the State Government: stop making the housing crisis worse!

THOUSANDS of first home buyers will get up to $4000 extra in taxpayer-funded grants… as the state government tries to ride the global economic recovery and create another 30,000 jobs next year…

From July 1, first-time buyers who purchase a new house in Melbourne will get a total of $20,000 in government grants, up $2000, and those buying a new home in regional and rural Victoria will get $26,500, up $4000. But the grant for first home buyers purchasing existing homes will be cut by $2000 to $7000.

First home buyer grants COST FIRST HOME BUYERS MONEY. They increase prices by more than the value of the grant and put young people further into debt. The only people who benefit are the vendors who essentially get a massive taxpayer-funded handout.

Naturally, the greedy real estate industry wants more:

Property industry leaders welcomed the extra help for first-time buyers of new houses, but criticised the government for failing to cut stamp duty on property sales.

Yeah, well, of course they want that – lower stamp duty means more houses being exchanged and a bigger cut for the land rats. But surely everyone can see that cutting stamp duty would just be a further transfer of public money to those already benefiting from the housing unaffordability crisis – buyers would just bid more. And, since unlike first home buyers investors are bidding with the equity in existing property, of which following a stamp duty cut they’d have more, they’d have an even easier time pricing them out.

All at the expense of the public purse – money that the State Government could use to actually help struggling young people, forced to live in ever remoter locations, by building public transport and other vital infrastructure to these new areas.

It’s astonishing to watch governments, now fully aware of the developing crisis, implementing and considering policies that actually make the problem worse.

16 responses to “Brumby – STOP MAKING IT WORSE!

  1. “The only people who benefit are the vendors who essentially get a massive taxpayer-funded handout.”

    not really, unless they plan on living in a shoe.
    actually the main beneficiary of these silly schemes are the banks, because everyone needs to borrow more

  2. Maybe I should’ve said “vendors who are investors” then.

  3. yeh, provided they bought before the grant, they would get a nice profit

    it would be foolish to assume the entire dept of economists at treasury dont understand the flow on effects of a simple grant.

    by blowing air into the balloon faster, maybe they trying make the bubble to burst sooner?

  4. The increased grant only goes towards the building of a new home thereby increasing the supply of housing stock while diverting demand away from established homes. It will have the opposite effect to what you suggest.

  5. It doesn’t “only” go towards the building of a new home – still $7,000 for existing homes.

    And as with all the grants, it increases prices by beyond the value of the grant, pushing buyers further into debt.

  6. Well I’ve tried to reply twice but my comment disappears. I give up.

  7. Weird, that one came through.

  8. It might be the html I used in the comment, Jeremy. Maybe it’s in your spam.

  9. I’ll try it without the html then.

    The official report from the budget states:

    First-time buyers of new homes in the metropolitan area will get $20,000, up from $18,000.

    Those building in regional areas will get $26,500, a jump of $4000, as part of a strategy to encourage growth outside Melbourne.

    But for buyers of existing homes, the subsidy has been cut by $2000 to $7000.

    So clearly the increased grant “only” applies to new homes. It is not a push factor on housing affordability.

    Honestly, Jeremy, this post and the one you wrote demonising baby boomers suggests you have a polemic approach to the whole issue. It’s much more multi-faceted than you make out and, no, the boomers are not causing this ‘crisis’. In fact most of them are just bystanders equally perplexed by the whole thing.

  10. 1. Boomers are voting for this crisis to continue and it’s fear of their reaction that stops the major parties returning CGT to pre-Howard levels.
    2. The increased grant only applies to new homes, but the $7,000 is still there inflating existing home prices.
    3. The grant isn’t even good news in the new housing market because IT PUSHES PEOPLE FURTHER INTO DEBT.

    I don’t think you get how mortgages work. If I have a $40,000-50,000 deposit (imagine saving that! that’s what faces young Australians now, and that’s borrowing 90%), the bank might lend me $360-450k. If I have another $26,500 from the government, the bank might lend me $580k+ on that deposit. Which is a lot more than $26,500 more than I – and competing first home buyers – had access to.

    Meanwhile, investors are fine because they’ve got huge amounts of equity in their existing properties, so they can push first home buyers right to the wall.

    In essence, the first home buyers’ grant transfers public money to existing owners, the building industry, and banks. It pushes young Australians further into debt. It is a terrible policy and should be abandoned.

  11. I don’t think you get how mortgages work either, Jeremy. The amount the bank will lend you is capped by your income. If you have an extra deposit they still won’t lend you more than your ability to repay.

    And yes, the increased grant helps out the building industry, tradies, building supply companies, furniture & white goods suppliers – the list is endless – all providing jobs.

  12. “The amount the bank will lend you is capped by your income.”

    That’s true, but it’s also capped by the amount of your deposit. Raising that via grant raises the price of houses by more than the value of the grant.

  13. In realty, Jeremy, the grant goes towards the 1st home buyer’s deposit ‘gap’. It does not give him/her more borrowing power, it just helps them qualify for a loan.

    All the grant does is bring forward potential buyers. They are still buyers. They are still going to buy one day. They still need a home. Why do you want to deny them one?

  14. “All the grant does is bring forward potential buyers. ”

    it does a lot more than this.

    large builders absorb the grant into their overall build price, the same health insurers do with the health insurance rebate.

    so instead of quoting 250k for a metricon home, they quote 254k. guess what happens to the price of existing homes when new homes go up?

    “It is not a push factor on housing affordability.”

    following this line of reasoning, if the first home buyers grant was 250k instead of 20k, do you still think overall house prices would remain the same?

  15. large builders absorb the grant into their overall build price

    That’s just a pre-disposed assumption, Karl. You presume the builders are rip off merchants and are colluding. But in the real world they are competing and cutting each other’s throats to get the contract.

    As for your example it’s just too extreme to comment on.

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