As Australian house prices continue to rise at record-setting rates, some experts have questioned whether government incentives, including housing grants, are helping ease the pain on first home buyers.
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The introduction of Homebuilder, the New Home Guarantee, First Home Super Saver Scheme (FHSSS), and increased First Home Owner Grant (FHOG) housing grants were touted by the Federal Government as a means to help, but as 2021 nears to a close, affordability woes have continued.
Recently released data from CoreLogic has shown that through September, national home prices continued their growth with a rise of 1.5%, matching the growth period of August.
Across the year, CoreLogic has reported national home values are up 20.3%, the fastest growth pace since June 1989.
With these significant increases showing no signs of correcting, industry experts are starting to publicly question whether housing grants are heating up the market due to the increased funds available for deposits.
In a policy paper submitted to the Standing Committee on Tax and Revenue in the House of Representatives, Raine & Horne Group executive chairperson Angus Raine said the introduction of the FHOG and other programs inadvertently eroded affordability.
“At the time, the FHOG was criticised for driving up house prices, which raised questions about its effectiveness.”
“I’m a firm believer in allowing market forces in combination with monetary policy and banking competition to create more favourable buying conditions for first-time buyers rather than providing subsidies that artificially inflate real estate values.”
University of Sydney economist and research fellow Cameron Murray has similar feelings regarding the FHSSS and thinks that even in its expanded form, the FHSSS will not achieve its goals of truly helping first home buyers.
“The data seems to suggest that almost nobody is going to use the scheme for long enough to save over $30,000 but below $50,000 and still be in the market for a first home,” he says.
“There will be almost no effect on anything.”
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Could stricter regulation make a difference?
While many factors have caused Australian home prices to continually grow, regulators intervening may not be the answer.
The Australian Prudential Regulation Authority is putting together a new plan to step in and cool the property market with new rules following price rises, but Grattan Institute economic policy program director Brendan Coates believes this type of intervention may cause further problems to buyers.
“Macroprudential means restricting access to credit and on affordability grounds it can make things worse,” he said, adding that regulation should concentrate on financial stability and not house prices.
“If you can still borrow it benefits you [as it can limit price growth] but if you can’t, you may not be able to buy and first-home buyers tend to be more leveraged.”
Instead of regulation, other options such as creating new tax advantages to help spur retirees to downsize without taking a big hit to their retirement funds and building more public housing are gaining momentum.
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“Empty nesters are doing their sums, and downsizing doesn’t stack up after taxes such as stamp are forfeited duty when buying the last home,” Mr Raine said.
“Several now older property investors who acquired quality, well-located investment properties 20-30 years ago for up to $350,000 in Sydney’s inner east and northern suburbs have indicated a desire to sell.”
“The trouble is these properties are now worth $2.5m to $3.5m. In these cases, the ‘exit tax’ bill will be well over $600,000 per property.”
There is also a renewed push for more public and community housing across the country, with Greens leader Adam Bandt proposing that if the party holds the balance of power after the next election, they will build one million affordable homes over 20 years.
Estimated to cost $7.5 billion over four years and $22.9 billion over ten years, this housing stock will contain around 125,000 properties in a shared equity ownership scheme, with home buyers owning between 50-75% of the equity, along with being able to access a low-interest loan to make their first home purchase.
Making Australian property more affordable is expected to be a hot topic throughout the next election cycle.
Words by Rimas Veselis
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