Fresh calls for housing stimulus

Yesterday’s Australian Financial Review published an article entitled Capital house prices slide, which provided a sobering assessment of the housing market, particularly in Brisbane, Perth and Melbourne.

House prices fell in most capitals in February and analysts expect poor affordability to prevent any real recovery for at least a year…

Rp Data senior research analyst Cameron Kusher said the Reserve Bank of Australia’s November interest rate rise and additional rises by the banks had made the past three months tough for the housing market.

There were record numbers of homes for sale, coupled with weaker demand. The average time taken to sell properties was climbing, as was the amount sellers had to discount their initial expectations to achieve a sale, Mr Kusher said…

“Certainly in markets like Brisbane and Perth we’re seeing a bit of a correction underway”, Mr Kusher said. “In real terms, you’re probably getting a drop of 15-20 per cent”…

He said Melbourne could experience further falls and Sydney would probably hold up better…

Charles Tarbey, chairman of national real estate franchise Century 21, said his data showed there were 67 per cent more properties for sale across his network than at the same time last year. The volume of sales was also down 30 per cent….

The increase in listings was even more stark in Victoria at 72 per cent, with a 34 per cent decrease in sales volumes, but figures for NSW were stronger than other states, with only a 26 per cent fall in sales volumes…

“It’s been slow going. The investors would usually have come in by now, but I think there is difficulty to get bank funding”, Mr Tarbey said. “And the values are coming in substantially lower than one might expect them to come in”.

With many of the nation’s housing markets now deflating, the housing industry has already begun lobbying the government for renewed housing stimulus in order to arrest the slide. From the West Australian:

The housing industry is demanding a new stimulus package to prop up the property market with the Perth median house price falling almost $4000 in the past three years…

The Housing Industry Association wants the Federal Government to entice buyers back into the market, force States to slash stamp duty on property and ditch its carbon tax plan…

And from the Herald Sun:

The HIA called on the Federal Government to introduce new stimulus measures, potentially including first home owner grants favouring new home construction.

With the housing downturn having only just begun, expect calls for ‘urgent’ stimulus to grow louder.

I just hope Gillard and Swan have enough backbone to reject the vested interests. Though given their track record, I expect to be disappointed.

Cheers Leith

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Unconventional Economist
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  1. No more stimulus! Stimulus is about spending money you dont have on things you dont need. ditch it!

  2. Disgraceful. Bad enough it was allowed to happen the first time. It did nothing but distort the market and make housing less affordable, contrary to the desired effect.

    Hopefully the pollies show some intestinal fortitude and tell the real estate lobby to get lost.

    Unfortunately this country is run by muppets. Seriously, our choice is btw Gillard or Abbott. That is the extent of the political talent left in Australia……pitiful!!!!!!!

    • Too true, both Gillard and Abbott are unelectable. The previous Federal Election proved that, and then the bed fellows that were chosen to form a Government.

      Stemetil anyone?

    • Sadly the electoral system in Australia is awful giving most voters the choice of only a few abysmal candidates with often only one of them having any chance of winning. To make it worse the bastards then fine you if you don’t go along and participate in the charade.

  3. When you’re staring down the barrel of a possible great depression 2.0, you’re not going to be thinking that far down the track to be worried about housing bubbles.

    However, under NO circumstances should they try and prop this thing up again with more directly injected housing stimulus.

    • Good word Lefty, especially since 2.0 looks like it’s going to be worse than 1.0…even with, I’m afraid, the inevitable, massive govt interventions …

      We really need tone on our knees NOW, and thinking about how we will serve each other in what is coming…

      God help us all.

  4. Ill bet this stupid govt will stimulate this bubble. I think if they do stimulate it that it wont make much difference. FHB cant afford whats out there now. Banks are starting to wake up to the fact they might be deep in the S#$T so they are not letting just anyone borrow money. When China slows down that is going to be a major problem for the economy.


    • Now the media is passing this off as a First Home Buyers Strike. Maybe some (like tiny) truth to that. It is mainly because not many (not just FHB) can afford to buy.

      It’s the consumer’s fault there is a slow down in property, not the economy, the economy is good, not the banks, not the speculators,..etc. Yeah right!

      Pardon my cynicism over this, but cynicism is the closest a fool (as I) can come to the truth. Something about this FHB strike doesn’t sit right.

      Maybe China doesn’t have to slow down, what if they say, I’m not buying off you this time round, or not so much this time, we have other vendors, cheaper over there, or we own the minerals under that part of your soil… Just what did you do with all that money we gave you for it? You want more????

  5. I really can’t believe that the government wants to alter the natural balance of the market. We’re already seeing the outcome of these policies (here and abroad) and they’ve failed miserably!

    Not only will this cost taxpayers a small fortune upfront, but it will leave future generations on the hook to sort out the resulting mess created.

    Less government is good government!

  6. I’ll buy one of Land Developer’s $380K dog boxes on 400m2 for a new BMW cabrio and no stamp duty (actual value of box and land is $200K, car $100K so I risk $80K).

    In 6 months I can dump the ghetto box for $330K to someone that idolises Michael Clarke as a batsman and thinks Tracy Grimshaw is an investigative reporter and then keep the car for $50K plus some nominal interest .

    Lets call it Beemers for Buyers.


    • Yes, also the GST was implemented around the time of the, Great Property Price Take Off. And the people loved it.

      I bet 100% of all people would say, “Stockholm Syndrome, na! wouldn’t happen to me”.

  7. Backbone is the new buzz word.

    Funnily enough we will probably hear it in 18 months time. When the ‘new measures’ haven’t worked.

  8. “The housing industry is demanding a new stimulus package to prop up the property market with the Perth median house price falling almost $4000 in the past three years…”

    Did they leave out a zero? Or is it meant to read $4000 a quarter?

    These wankers just don’t wash with those trying to unload or enter at the bottom.

    A coleague in Perth just flicked his house on transfer. From 800K on spin valuation to 720k to actually get interest and 690K on settle.

    Wake up.

  9. It (ie resuscitation of the FHBG) won’t happen – “bubble” has become a dirty word and nobody wants to be associated with one.
    Monetary policy will be used to arrest falling house prices regardless of the inflation rate. I don’t believe for one second that the RBA is that independent.

    • Drop the Overnight Cash Rate = drop AUDUSD = $2 a Litre at the pump AND (as a bonus) inflation in the 7-8% area.

      Yer think?

  10. Gillard, Swanny and Wong will have an exciting raft of measures which will save us all.

  11. The Greens have called the housing situation in this country disgraceful and correctly indentified the first home sellers’ grant for what it is. I doubt they will support such a measure.

  12. “I just hope Gillard and Swan have enough backbone to reject the vested interests. Though given their track record, I expect to be disappointed.”

    Hah! Sorry, I really love your blog but this is wishful thinking at best, pure fantasy at worst. Gillard and Swan will spend as much money as they can to ‘stimulate’ housing if a large downturn takes place.

    In the end, if the s*** really does hit the fan, no amount of stimulus will stop the drop.

  13. I do agree stamp duty is way to high. What business is it of the state government is you decide to buy a house.

    Admittedly you need a govt employee to change the name on the title, stamp it with a pretty coloured stamp and send it in the mail to someone – and that would take most of the day no doubt as well as acruing a bit of stress leave.

    Apart from all that its an immoral levy/duty/tax

    • Explain this to me. You’re all worried about a housing bubble (or more correctly, barracking for a crash so you can be proved right). But the one thing in the set of government tax policies that dampens speculative frenzy, stops US-style ‘flipping’ and put the brakes on prices, you call “immoral”?

      • Sam Birmingham

        I wouldn’t say that stamp duty dampens speculative frenzy – its greatest impact is distorting people’s decision and thereby promoting allocative inefficiency.

        Sure, get rid of stamp duty, but the revenue has got to be replaced from somewhere… A broad-based land tax, now THAT is a good idea!

  14. Thanks Leith, i’m really enjoying these blogs as i’m currently on the other side of the world on holidays and along with the online newspapers, this is my only way of keeping up with the property market.
    I’ve been amazed by the change of sentiment by the mainstream media, mainly the fairfax papers.
    Could you (or other bloggers) tell me though, what has been the take on this from the tabloid current affair shows, television news, ABC/SBS news, etc at home?
    I know when the market is going up, they jump all over it.

  15. This downturn in the housing is a leading indicator for employment growth/contraction.

    Those endebted ‘homeowners’ at risk of losing their jobs will a) stop spending and b) not come onto the property selling radar until all other options have been exausted.

    This may take a year or two, and then the fun will begin

    • Yes, that’s my main fear as well. Directly and indirectly, the housing industry is a big driver of aggregate demand – rather bigger than mining, which employs less than 2% of the workforce and contributes only around 6-7% of GDP, and even that’s misleading because it doesn’t take into account how much of the income generated is actually whisked away by foreign interests before it ever gets the chance to enter the domestic spending stream.

      One way or another, house prices are coming down – I just hope it’s a long, steady deflation, not a sudden collapse.

      • A long, steady deflation?
        That’s what it has been so far – for seven years in the case of Sydney. This is not the US where people defaulted before the economy tanked, presumably because of the non-recourse business.

        • A long, steady deflation in Sydney??? Around my neighbourhood property is up 20% over the last couple of years.

          • Sydney property down 20-25% between 2003 and 2007, up 20% 2008-2010 courtesy of FHVG stimulus, currently on the way back down again, next stop???

  16. PowerballOnlyAnswer

    I missed out on the Powerball jackpot this week, which means I will need to rent for a while longer………….

  17. Correct a Kiwi if I’m wrong, but hasn’t your RBA Governor been ‘saying’ to Australians, for some time now, “I wouldn’t put too much more of your money into property, if I were you”. I’d suggest he’s much more likey to say “I told you so” rather than undo his widom recent times, and add to his mana.

    • It depends who he’d addressing. He’s made statements to that effect while also telling an international forum that Australian house prices are something that doesn’t keep him up at night.

      • It just means that the bastard doesn’t care enough to lie awake and think about the little people who’s ability to pay the mortgage rides on his monthly meetings…well, that and the cost of Foxtel, the repayments on the HSV, the price of a carton of pseudo imported beer, and the cover price for an issue of FHM…but that’s not important right now!

        What is important is that Stevens sometimes seems intentionally ambiguous with his wording, not only to avoid fuelling speculation on RBA policy decisions but perhaps also to avoid answering most questions with definite responses which at some point he will be expected to explain or justify. Can’t say as I blame him however – It would be a tough gig having to steer the economy, in the absence of a competent government, with nothing more than an interest rate lever and a hat full of prayers!

        • In Greenspans words:

          I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I said.

  18. Went to an auction out of curiosity yesterday in Sydney’s East, 1-bed, 58sqp, LUG, agent had said there was interest around $515k.

    Bidding started at $520 and it eventually sold at $585K!!!

    When’s this bloody crash coming?

  19. In regard to “China might not have to slow down”.. Maybe Brazils mining giant VALE could be a ‘dark knight’ trigger?
    Largely unnoticed, a few months ago VALE was buying up Africas vast reserves of the commodities that China needs. They stated that they expect the prices to fall soon – but that their revenue would increase.
    The only way VALE can do that is to take more of Australias market share? China is already unhappy with RIO after the ‘Stern Hu’ corruption affair. China would happily favor VALE and halve the Ozy slice.

  20. Endrortsonhousing

    That non-recourse business is a bit of a furphy, Goodnessme. My understanding is that – like a lot of things in the US – there is no standard federal law, but rather a patchwork collection of state laws. Some states mandate non-recourse loans, others do not.

    Also, non-recourse loans were not an issue in the UK and other countries where there has been fair-dinkum crashes.

    On the topic of the original post, I will scream bloody murder if the government again uses my income taxes to enrich economically irresponsible participants in the housing market – penalising people for saving money. The last time they rolled out the home vendors grants they at least had the excuse of the GFC – nothing like that this time, so it would just be blatant support for UE’s ‘politico-housing complex’.

        • I see the ‘mega’ crash states of Nevada, Michigan and Florida aren’t on the list.

          • Nope, but California and Arizona are so the ledger is pretty even.

            Many people don’t realise that Ireland has some of the harshest bankruptcy laws in the Western world and they certainly hasn’t propped up the housing market.

            “Any individual who is made bankrupt in Ireland remains a bankrupt, unless they have been discharged by the court. The courts will only consider allowing an individual to leave bankruptcy after enough money has been raised through the sale of their assets to cover the costs, fees, expenses and certain priority debts that have arisen in the bankruptcy process after a 12-year elapsed period.

            However, bankruptcy has major pitfalls including: An individual declared bankrupt cannot be a director in a company without the permission of the court, and they cannot hold certain positions as an elected representative..

            Any existing or fufure inheritance that the individual recieves will be used to pay creditors. The court can order part of the bankrupt’s salary or pension to be deducted to pay creditors. The individual will find it extremely hard to recieve any credit in the future as their credit rating will be severely affected.

            Once a person becomes bankrupt, their name and address is entered into the Bankruptcy Register kept by the Examiner’s Office, which is widely used by individuals looking to sell or buy property. Even if the person is discharged from bankruptcy, their name will remain on the register.”


  21. More stimulus. Wouldn’t put it past the buggers! They’ll stoop as low as necessary to keep the bubble inflated.

  22. Speaking of M’s Gillard and Mr. Swan I was amused at Swan’s remarks yesterday regarding the Treasury “leak” on the household cost of the proposed Carbon Tax scam.

    99% of what he said was a political rant repeated over and over and over, ad nauseum – it was so bad I had to turn the ABC news to OFF (nothing new in this…)

    How many times do we need to catch these inepts out before people will understand that they are incompetent and ripping the system off for the Queen and now the USA:

    Thus I have heard and attributed to M’s Gillard:
    “A Tax, A Tax, my Kingdom for a Tax”.

    Politicians will only do what they believe will get them re-elected as the Recursive Policy Team.


  23. The fact that Australia doesn’t have non-recourse loans will make it much much worse for everyone that gets caught out when the market does correct.

    There are people in Japan that are still stuck with properties that have higher debts on them than the property is worth. This is 20 years after their property market corrected!!

  24. It is fortunate at this point that the political agenda for the government, in trying to unassailably demonstrate their own economic competence, appears to be to increase taxes and decrease spending in order to shoehorn the budget back in to surplus in 2012/13.

    If this is in fact the case, unless they have some way to justify a delay a move back in to surplus, they will not have the funds for this unless they cut some other form of spending.

    Here’s hoping that they’ve painted themselves too far in to the corner to embark on another spend-a-thon in the absence of a significant trigger event.

    • I think all the warnings to only borrow what you can afford will be seen as their disclaimer to say they are not at fault for the blowing of the bubble and subsequent crash.

      I will be happy to see public lynchings of spruikers and politicians as its no more than they deserve.

  25. Kusher saying Brissie and Perth down 15-20% in real terms… that’s pretty big, and it’s happened quickly, so there is some momentum behind it… I don’t see it pulling up for a bit… actually, from what I’m seeing in Brissie, I think the momentum continues to build… it’s certainly more than “a bit of a correction”…

    • That’s how it plays out homes4aussies. A series of step changes that build momentum.

      Clearly the fundamentals are right for a downtrend but fear drives it. Is fear the overwhelmingly dominant emotion right now? Not from what I am reading, seeing and hearing.

      I think Endrortsonhousing made an important point about further government stimulous. They don’t have the GFC excuse as a cover at present.

      I think 787 Dudliner also touched on a key issue. It would be interesting to hear Deus’ thoughts on how the FX market would react to a range of government policy responses to an RE crash. So Deus, what policy mix would flush the Aussie dollar? Or, to put it another way, if the government wanted to do this what policies would you recommend? (I’m not suggesting they do want to do this BTW.)

      Returning to fundamentals it would also be interesting to hear Deep T’s thoughts on this question in relation to the banks: Is shrinking their loan books a case of “if” or “when”?

  26. Housing stimulus to keep the Ponzi scheme going? Stupid, but of course Gillard has done plenty of stupid things before.

    While she’s at it, shouldn’t we all be receiving stimulus money to further inflate the price of food, petrol and utilities? And then we could have a tax to fund the stimulus!

  27. I’m 99% sure the gov’t will stimulate, for the simple reason that they would be expected by most to ‘do something!!’. I think politically it is better to try and fail, than not do anything at all.

    That said, they’ve been actively promoting cheaper housing policies via fhbg, massive land release, off the plan stamp duty discounts, etc, to which a housing price crash would eclipse in terms of affordability effectiveness, yet i still feel they’ll stimulate the crash anyway.

    What should’ve been done over the last decade is very heavy handed measures to keep house prices in line with CPI at most – eg. Lending restrictions, limits on properties one can own, no foreign ownership, etc.

    • As I said above, I am not so sure they can or will. The fact that they put out the warnings for people not to over-leverage (albeit not emphasised enough), is their disclaimer for saying we told you so.

      Its ludicrous that propped it up the first time, if they are stupid enough to try a second time I can see some very, very angry people willing to take the law into their own hands.

      • Im not usually one to condone violence, but this issue has boiled my blood like no other.


  28. Shouldn’t there be “Wealth Warnings” attacted to every mortgage?! You know, like the ones that go with a packet of fags – a nasty desciption of what life could look like if you can’t afford to repay the sucker, and based on a computer simulation of your particular circumstances…..

  29. Andy said “I’m 99% sure the gov’t will stimulate, for the simple reason that they would be expected by most to ‘do something!!’.”

    You know that is what makes me so angry, pi$$ed off, and ready to bunch a F#$KING Wall. That Most people in Australia would expect the govt to do something. How can you blame the govt when its the general population that wants it. The same goes with the price of things everybody wants it cheap as possible but wants great service with a smile. That service costs money. I just get so angry because if you really peel it all back it isnt the govt its the Australian population that drives it. There are jsut a few in it like the people in this blog that are against it all.


  30. The housing market is doing exactly what Glenn Steven wants it to do — stagnate. Ditto for the Australian domestic economy. Non-resource exporters will be sacrificed. This is to offset the huge amounts of money going into mining investment and the cash being generated by the miners.

    In short: Most Australians must suffer so mining can prosper. Think about that, the next time you hear an economist cheering on the mining boom.

    While the resources boom continues, this will continue to be the plan. If house prices start to fall alarmingly, Glenn has more than 400 basis points of ammunition available to him. If house prices start to rise again, Glenn will quickly tighten the screws.

    As long as the mining boom continues, house prices will be kept in check, but so will your wages. Affordability will stagnate as well.

    Plan A for Australia is:
    – Miners: Untold wealth
    – Most Australians: Stagnating
    – Non-resource Exporters: Destroyed

    There is no Plan B.

    • Lorax,

      Interesting correlation below identified by Steve Keen.

      “…. the sheer scale of debt, its rate of change, and whether it is accelerating or decelerating, have very significant impacts on the macroeconomy. If Bernanke, Krugman and other neoclassicals were correct, the correlations between the acceleration in debt and the change in unemployment should be insignificant.”

      “Instead, the correlation is highly significant, large, persistent, and causal, since it leads changes in employment and GDP by about 3 months. The correlation during the Great Depression was -0.72; over the whole post-WWII period from 1955 the correlation was -0.59, and since 1990 it was -0.82 (see Figure 31).”

      If we have reached debt “saturation” 400 basis points might not be enough to influence the direction of the RE market.

      • If we have reached debt “saturation” 400 basis points might not be enough to influence the direction of the RE market.

        The full 475 basis points will only be used in one eventuality: A catastrophic crash in China.

        As long as the miners are hauling in the cash from Asia, we can continue to fund our housing bubble.

        • Lorax,

          You wrote:
          “As long as the miners are hauling in the cash from Asia, we can continue to fund our housing bubble.”

          Could you explain how this impacts on Keen’s correlation between the rate of change in debt levels and unemployment?

          Keen’s argues that the total debt doesn’t need to fall in order to increase unemployment. The total debt merely has to cease to grow.

          If the prospective borrowers wont borrow Glenn’s influence over interest rates is irrelevant.

          The largest exposure of the banks is to RE. Rising unemployment = rising defaults. If Deep T’s analysis is correct the banks are much more vulnerable to a falling market than they claim.

          Hence it is game over for the RE market if this correlation holds, borrowing levels off or contracts and unemployment rises to a critical level.

          • Ok, lets say the housing downturn accelerates prompting a downturn in the (non-resources) domestic economy. Glenn could easily slash rates by 200 basis points in that situation.

            Are you saying Aussies wouldn’t rush to the bank to borrow more if interest rates were 2% lower? Of course they would! The banks would have no trouble funding the debt as long as resources is humming along and international confidence in Australia is high.

            Australia only runs into trouble when the commodities bubble bursts.

          • In Ireland housing was the economy. We have housing and dirt.

            The Irish weren’t lucky enough to have a neighbouring superpower spraying money at their economy at the depths of the financial crisis, a money hose that continues to prop up our economy (and housing market) three years on.

            Of course, our fabulous “luck” is built on another bubble, a much larger bubble — the Chinese investment boom — so don’t look at Australia for a housing boom that’s unsupported by fundamentals, look at China!

          • Sorry, The Aussie Ponzi employs more than the hole digging.

            Notice Perth home values lately?

          • The Billions in profit announced to RIO and BHP is not winding its way into the community.

            Ding. Ding.

            I goes to shareholders.

          • The billions in profit are taxed and redistributed throughout the economy. This supports consumption, employment and housing.

            Are you seriously suggesting that we could have mortgage rates above 7.00% without the support of mining income? Without the massive Chinese stimulus of 2009 Australia would be in a very deep hole today, and we’d most likely still have interest rates below 1%.

            Perth’s problems have more to do with the huge run up in prices before the financial crisis, the market has more or less flatlined since. Without mining income the post-GFC market would have been far, far worse.

  31. The only form of federal stimulus I could support in Round 2, is the Commonwealth funding the up front stamp-duty cost for First Home buyers (seeing as the states cant afford to lose this income). Though most states have heavily subsidised this already.

    • How would that be any different to them just giving FHBs a big wad of cash up front? The effect will be, as it always has been, to give fools a sense of more money available to them to spend, thus causing them to push prices up, resulting in the stamp duty being transferred from the state to housing sellers. I’d rather the government had it that those who’ve participated in the lunacy that’s been the Australian property market.

      The one thing it won’t do is anything useful toward housing affordability.

  32. I don’t understand how they say Perth has only dropped $4,000 in 3 years.

    This home around the corner from me in Sorrento WA was originally listed in the mid $900k’s in November 2010. This was an average price for a home of its size at the peak of the property bubble.

    With no interest it was reduced to $850,000 then $800,000 and is now $720,000!

    A neighbouring property of similar size with a b/g pool was listed in the high $800k’s and just sold this week for $730k (below its current list price of $759k+).

    • This InterWebNetThingy is a super nasty bitch aint it? Just when “they” have “conditioned” the public to a reality about Sorrento someone bobs up who actualy lives there and says “it aint so”.

      To add insult to MSM injury he posts links to supporting evidence. Real time citations. How much can an academic Koala Bear?

      Gavin, I refuse to believe you until this is in the West Australian.

      Get some pastriotism mate!

    • I would expect that the difference is that the pain is mostly being felt at the higher end of the market at the moment, as the bogans that seriously overleveraged into coastal suburbs like Sorrento feel the pinch.

      The more affordable median level housing probably hasn’t been hit yet, so while the top of the market is crashing, the median level is probably holding level. For now.

  33. LBS
    “if you really peel it all back it isnt the govt its the Australian population that drives it.”

    Boganomics has a pretty good grip on that situation.

  34. I think Lorax is one of Shadows sock-puppets. Makes about as much sense as him anyhow.


  35. QLD construction industry join in on the squeal for .. you guessed it.. stimulus.
    Housing and building at crisis point
    “”We’re already in a situation where we’ve got 40 per cent less housing than we should. Add 20 per cent less activity this year and that means our undersupply will only go up and, unfortunately, affordability will plummet even further,” he said.”

  36. Chief Squirrel

    You must be running low on oxygen in that backroom you operate out of, Leith. (tee hee)

    Are you even *considering* that the Gov. will make a decision based on what needs to be done for the good of all?

  37. And here it is… hot off the REIV tweet press.

    “1st home buyers will be happy that the State Government has announced the $13k bonus and $6.5k regional bonus will continue post 30 June” about 2 hours ago via web

    This is in addition to the $7k Federal grant.

    Up to $26.5k for a FHB to build in VIC.

  38. If you ask me it’s the first home owners grants that has contributed to the over priced housing market. It gave people who had never had a savings plan access to a deposit that they would not, in such a short time, have been able to save for. This flooded the market artificially increasing the price of housing. This is the issue now, does the government keep propping up the housing market or let it “correct” itself to a more sustainable price. We need the “correction” if people learned to save in the fisrt place we would not need the first home owners grant. It’s like a parent giving their child money, if they don’t learn it’s value and how to save things are not going to change.