Publicly-listed Australian mortgage broking firm, Mortgage Choice, has taken self-interest to another level in the wake of the sharp fall in first home buyer (FHB) mortgage demand, whereby the proportion of mortgages to FHBs fell to the lowest level since June 2004 following the recent cancellation of grants to first-time buyers of pre-existing dwellings in New South Wales and Queensland (see next chart).
In an interview with Property Observer, Mortgage Choice CEO, Michael Russell, has insisted that state governments reinstate FHB grants to all buyers, as well as index it to rising property prices. He also attempted to argue that FHB Grants are not inflationary to property values. From Property Observer:
Mortgage Choice CEO Michael Russell says he is certain state governments are re-assessing their first-home buyer grant schemes following dramatic falls in their share of the mortgage market.
Russell quoted ABS figures showing that from July to December, the proportion of first-home buyers taking out home loans fell from 18.6% to 14.2%.
A year ago (December 2011) their share of the market 20.2%.
Russell told Property Observer this was a “significant deterioration” and an area of “genuine concern.
He says changes to first-home owner grant schemes are not having a “particularly favourable effect”.
Last year the Queensland and NSW governments withdrew the $7,000 first-home owner grant and replaced it with a $15,000 grant but only for those who buy or build a new home.
Russell says Mortgage Choice believes that all first-home buyers should be entitled to the first-home buyer grant.
“The notion of not indexing it it does not make sense.
“It needs to be indexed.
“I am sure it is being assessed at the moment, there will need to be action,” says Russell.
He added that he does not subscribe to the notion that the grant has an inflationary effect – the theory that the grant pushes up house prices so first-home buyer don’t actually get any benefit.
Anyone with even a basic understanding of economics would recognise that increasing FHB grants in the face of unresponsive supply is counter-productive and simply causes home prices to rise, making affordability for FHBs even worse, while costing taxpayers millions.
If Mortgage Choice was truly concerned for FHB welfare, it would argue for policies that remove speculative demand from the market, such as eliminating negative gearing, as well as freeing-up planning constraints, so that more affordable homes can be brought to market.
One wonders as well about what this says about FHB demand in February.