WA first home owner’s grant revealed

Back in March one of MacroBusiness’s gold star recipients, Saul Eslake, penned a stinging review of first home buyers grant schemes in the Sydney Morning Herald:

It’s hard to think of any government policy that has been pursued for so long, in the face of such incontrovertible evidence that it doesn’t work, than the policy of giving cash to first home buyers in the belief that doing so will promote home ownership.

Saul goes onto explain that all side of politics have been providing cash handouts to first-time home buyers for almost 50 years, however the period with the highest home-ownership rate was actually recorded in the 1961 census, three years before the first of these schemes began. The overall effect of these policies has simply:

… added to upward pressure on housing prices, enriching vendors (and making those who already have housing feel richer) while doing precisely nothing to help young people into home ownership.

Contrast this with what happened during the 1950s and early 1960s, when the Commonwealth government provided low-interest loans to state governments to build houses for sale to eligible first home buyers. The home ownership rate rose from just under 53 per cent at the time of the 1947 census (a level unchanged from that reported in the first Commonwealth census in 1911) to 72 per cent at the time of the 1961 census.

So basically, if a housing policy isn’t directly targeting supply it will simply add to the demand for housing and therefore push up prices. This dynamic is exacerbated in an environment of “easy credit”.

Yesterday I noted that a politician from Western Australia, an area once again flirting with dangerous credit standards, had picked up on Saul’s work and asked some very interesting questions to the WA minister for commerce as recorded in hansard:

FIRST HOME OWNER GRANT SCHEME

734. Hon LYNN MacLAREN to the minister representing the Treasurer:

(1) How much has the Western Australian government spent on the first home owner grant scheme since its inception, and would the minister please provide an annual breakdown?

(2) Is the minister aware of an article in The Australian Financial Review of 25 August in which Grattan Institute director Saul Eslake claims that the grant has failed to produce an increase in homeownership rates over time and is a gratuitous and wasteful handout?

(3) Is the minister aware of a graph in The Australian Financial Review of 27 May that plots median house prices by state over the past 30 years and suggests that the first home owner grant scheme has had an inflationary impact on house prices?

(4) Has the government ever analysed the inflationary impact of the first home owner grant scheme on
house prices?

(5) Would the minister table any such analysis?

(6) Has the government ever conducted a cost–benefit analysis of the first home owners’ grant?

Hon SIMON O’BRIEN replied:

I thank the honourable member for some notice of this question.

(1) Since its inception, the state government has made available $1 649 million in first home owner grants, including boost payments, and has received $356 million in revenue from the commonwealth government specifically for boost-type payments. I table the information requested (see attachment).

(2)–(3) The Treasurer is aware of the newspaper article and graph in question. What should be noted is that all states are required under the intergovernmental agreement on federal financial relations to assist first home buyers through the funding and administration of a uniform first home owners’ scheme.

(4) Yes.

(5) Analysis has been undertaken recently to help inform broader work by the Council of Australian Governments on housing affordability and supply reform. However, until this analysis has been considered by COAG, it remains COAG-in-confidence.

(6) No. It is again noted that all states are required under the intergovernmental agreement on federal financial relations to assist first home buyers through the funding and administration of a uniform first home owners’ scheme.

$1.649 billion dollars of taxpayers money has been spent in Western Australia under the guise of supporting affordable housing for Western Australian first home buyers.  Money well spent!

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Comments

    • but I still dont get who’s vote is being bought? The RE Agents and owners of multiple properties…YES, but the majority of people that have the cost of housing pushed up for them and their children…?!?!

      Its just ignorance that has allowed this policy to work so well. If people realised that more expensive homes are bad and the FHBG pushes up prices, then they would oppose the measure.

      I actually think we have reached that point…people saw what happened in 09/10 and they realise the FHBG is a fools gold

      • Anything beyond the actual tasty act of “free money!” is too complex for the average Joe to comprehend, seriously. Take away “free money!” you take away votes regardless of the real underlaying reasons. Throw in a bit of extra “free money!” and you get a few more votes. Easy!

      • 70% of households own a home (with and without a mortgage). Prices going up is good for them

        And the strange thing is that aspirational buyers often think prices going up is good, because once they get on the property ladder, it’s up, up, up!

        That is why the politics of housing is so different in Germany, for example.

        A list of homeownership rates (admittedly not the most reliable) is here
        http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate

      • Notice how careful Stavros is – talking only about the temporary FHBG (First Home Owners Boost), while avoiding any mention of the Mother of FHOB – FHOG (First Home Owners Grant)
        .
        Until people like Stavros shed their ideological straitjackets, we the people, will not make any progress on this subject.

        • When did I talk about the FHB boost and not the FHB grant??!?!?

          How much is the original FHBG? 7K…

          That is what I am talking about…removing the 7K grant…the boost has been removed a long time ago. Remember, the Keynesian inspired Rudd said “all good thigs come to an end”

          You are the one that cant get rid of your ideological straightjacket…I was talking about a policy here..a policy supported by all the major parties AND the greens and the independants…

          They are all morons!

          • When did I talk about the FHB boost and not the FHB grant??!?!?
            .
            Well, you referred to the 09/10 period.. and nothing about the stuff that was happening 20+ years.
            .
            people saw what happened in 09/10 and they realise the FHBG is a fools gold
            .
            See my comments below about the history of politico housing complex and how John Howard is the Founder-President and all the other pollies from both parties jumped on to the PHC bandwagon.

          • No Mav…if you understood how the FHBG actually inflates prices, then you would know that if you want to point the finger at a particular party, the Rudd-reflation of housing by boosting the grant was the most insidious of policies for the following reasons:
            1)Kevid Rudd campaigned on housing affordability as a key plank. I know a lot of young people that voted for him for this policy alone. Then, when the GFC hit, and houses started to become more affordable his Government implemented a policy that Tanya Pilberseck specifically said inflated house prices
            2) The Howard intro of the FHBG in 2001 was to counter an expected slump caused by GST. It was a silly policy indeed, but at the time housing in Australia was not already chronically unaffordable.
            3) Following on from 1 and 2, the Rudd reflation of housing was so evil because it infalted an already chronically unaforable housing market and because it was in direct contradiction to their stated policy beliefs.

            The ALP died the day they propped up house prices in 2008/09. It was the end of any claims they may have had as the party of social justice.

            Your willingness to try and defend them by comparing them to Howard shows you are a simple-minded fool that comes on here to provoke arguments with people that critise the left-wing fakes that hide under the guise of being ‘compassionate’

          • I have always said (in hindsight) that FHOB was a bad policy. (Even Steve Keen supported it at the time and later railed against it)
            .
            But FHOB was just a temporary top-up of an existing FHOG policy, started by the John “battler” Howard as a middle class welfare program to buy votes and inflate a 20+ year housing bubble.
            .
            Since you chose to defend Howard’s FHOG, can you please explain how introduction of GST can affect the cost of an existing property??
            .
            shows you are a simple-minded fool
            .
            Easy, tiger. No need for personal attacks when you have failed in a civilised debate about public policy.

      • No votes are being bought. Revenue is being bought.

        Think about it… stamp duty is on all properties. FHOG is only on some. The FHOG pushes up the price of all properties, more or less.

        One of the real winners for higher house prices are the ones who collect their portion from every transation. And this is where significant state revenue comes from, I think you’ll find it is much more than this $1.65 billion.

          • In the 06-07 financial year, states got about $12 billion in stamp duties alone.

            Divide that up, and you might be averaging about 2-3 billion for the most populated states. PER YEAR.

            That’s a lot, especially if you only had to spend 10% of that money to achieve even higher returns.

            One thing to keep in mind is that states need volume as well as price, or else revenue stalls. So they need houses to change hands, regularly, preferrably for higher and higher prices.

          • On this note, be watchful of states that need to balance their books, like NSW, who might see a stagnating property market as a threat to revenue.

          • Excellent point Pete…the States get great bang for the buck by dishing out greants.

            The losers of course are the people that take the grants.

            How sick is this policy. Its the worst policy this nation has come up with since White Australia. Worse than offshore processing, middle class welfare etc…

            Its disgusting!

          • It’s very sick.
            Although if I had to balance a state budget i’d sure be tempted to do the same, particularly if ‘everyone else was doing it’.
            Imagine state treasurers competing with other state treasurers for the mantle of ‘highest stamp duty revenue’.
            Talk about detached from the voters.
            More now than ever I think that what we see and hear are merely symptoms of decisions and deals we’ll never be privy to.

  1. The Hon. Simon O’Brien actually answered those questions very well I thought… without passing any comment on what he actually thought of the scheme he basically re-iterated that there was prior agreement between all governments (state and federal) that they were going to throw buckets of cash at first homebuyers and therefore there wasn’t going to be any debate about it.

    W.A. and Perth in particular is in somewhat of a hole I’ve heard… the Perth market was one of the most expensive in the world for a long time and now it’s going off the boil at last as per the last graph. It would be political suicide at this point to even contemplate removing a generous subsidy from the equation. If anything they will be talking about where they can get more money to throw after the $1.6 billion they’ve already chucked at it.

    • But Sean G, that is the whole point…the problem (expensive houses) was partially caused byt he FHBG. You seem to suggest that falling house prices in Perth are not desireable

      “W.A. and Perth in particular is in somewhat of a hole I’ve heard… the Perth market was one of the most expensive in the world for a long time and now it’s going off the boil”

      • Stavros,
        It will be fascinating to compare the price movements in sub-$500K units in Perth and Sydney, after 1 Jan 2012.

        The NSW Gov’t is removing the biggest FHB concession (ha ha) while the WA Gov’t is increasing the value of FHB concessions….

      • No Stavros, I don’t have an opinion either way about the situation. I do, however, have good friends in inner Perth who bought at the height of the boom about two years ago and I’m sure they are having second thoughts now. However, as opposed to the majority of people they do have lots of capital (and really good stable six figure jobs) so I’m sure it’s not affecting them in the same way it would for someone on an average income struggling to maintain a jumbo mortgage in the Perth suburbs.

        If there is a really prolonged and deep drop in prices it will eventually have lots of undesirable outcomes as per Ireland and certain US states. Nobody will win if the economy crashes and people are thrown onto the dole queue all because of this stupid obsession with housing capital growth we’ve had in the last fifteen years…

        • I disagree Sean…the falling of house prices is a good thing. It was the forming of high prices where the damage was done.

          The same thing applies to Government austerity…Governments spending less and getting their deficits under control is a good thing…it was the reckless spending and racking up deficits where the damage was done.

  2. (5) Analysis has been undertaken recently to help inform broader work by the Council of Australian Governments on housing affordability and supply reform. However, until this analysis has been considered by COAG, it remains COAG-in-confidence.
    .
    So when is the next COAG meeting and are they going to release the report afterwards? I hope this isn’t the same old NHSC report that predicted an “undersupply” of 200,000 houses – fodder for every spruiker in the land.

  3. I had to read that number a few times to make sure I was not misreading it.

    $1.649b for WA alone is an abomination.

    Grats to Lynn MacLaren for raising this issue in parliament.

    • +1 Mic…an honest politician that actually asked a hard question. It shouldnt be this rare.

      Cory Bernadi actually rallied against it (the FHBG boost) in 2008

          • You could have chucked in NSW Treasurer Baird, for removing stamp duty concessions on existing property bought by first home buyers. That is a good start.
            .
            But if a religious-right wingnut is your hero..I won’t object.

        • I would never vote Green even if the other parties were campaigning on a platform of setting up death camps for over weight middle aged males (Although I’d be exercising and dieting pretty hard)

  4. ” to assist first home buyers through the funding and administration of a uniform first home owners’ scheme.”
    Assist FHB? Somehow I don’t think so. Try the other acronym: PHC.

    Well done Lynn.

  5. I think people underestimate politicians in one important way – as you point out DE, grants inflate house prices. They know that too. I suspect if one of our knowledgeable bloggers could obtain the stats for how many MPs own multiple investment properties we might understand their apparent ignorance a lot better…

  6. This is a classic illustration of how nanny style politics works.
    Interfere in land markets to “protect” the people from “the consequences of sprawl”. Then when prices keep going up and up, offer vote bribes on the “demand” side of the market.
    Notice that almost NEVER does any politician’s “solution” involve removing the problem THEY caused in the first place. No, just heap layer apon layer of distortions onto the market. The media, left wing lap dogs that they are, will obligingly provide a narrative that “markets have failed” every time further crises result.
    Those politicians who DO offer common sense solutions, like Don Brash in NZ, languish at 1% in polls. Our civilisation is certainly in its decadent, post-reason phase.

  7. In the previous NSW state government ( labor)
    The PHC was extremely well run, with one housing minister owning 17 IP’s most of which had been brought from the Housing department.
    Tripodi was infamous for his land deals in conjunction with a family friend who is now charged with Murder.

  8. It’s partly because of the FHOG and negative gearing that I want the whole politico-housing complex to crash hard, and extremely hard! And whatever the cost!!

    I don’t want a “slow and easy” deflate. I want the pain to be so intense that lessons have to be learned and, also, I want government coffers to be so depleted by the chaos that they can no longer afford to give away money. Only then can we truely rebuild.

    • That’s pretty far out. The majority of ordinary people and their elected representatives aren’t into S&M, though, so I suspect you are going to remain frustrated.

    • No I agree. We as Australians have been negligent to future generations and the quality of life they have to endure. All for the sake of debt.

      People need to learn that investment is always risky before things will start to change for the better. The savers at the moment are being punished via inflation while people getting 100% mortgages (particularly here in Sydney) are being rewarded/pandered to.

      Besides if enough people are going bankrupt it won’t happen – things will change before that occurs. Or the government will print money or rather. Most people I’ve talked to have told me to by more property because it never fails because “the government won’t let it”. Moral hazard, systemic risk to the extreme. By saying that everyone is saying the government will bail them out.

      • +1. Though I doubt the efficacy of this – there are so many vested interests also using social and mainstream media to spruik for continued and more middle class welfare – REAs, media commentators, Banks, even Getup! and Choice.
        .
        We need a crash to reboot the system.

    • I agree reusachtige – it could be my German heritage and schadenfreudian leanings, but I get so angered as a saver who knew better than to be suckered into the ‘free money’ bubble mania that can only end one way, only to be punished by our tax system for my reponsibility on housings way up, and in the knowledge that I shall also be punished on the way down through broad base tax reforms and bail outs. It turns my stomach, and reiterates the folly of GFC remedies – reward the greedy who have recklessly chosen not to price risk.

      • I agree with both of you and having just done my tax return where I was brutally savaged by the Government for saving my money rather than propping up the housing bubble.

    • Fantastic comment, had to laugh, well put. Not sure whether I agree or not.

      My position at the moment is that either property goes down, or I go back to Europe. Australia has many wonderful things to offer. Great people, fantastic moments. However, the impact of the ridiculous property prices (and high prices in general) on livability really tips the balance towards Europe with its admittedly less friendly atmosphere, crowds and crappy weather.

      I too agree Australia needs a shock to overcome certain ingrained behaviours.

      That said, I do not wish the sort of harm/pain that would accompany it to anyone…

  9. Labor governments haven’t done any better, but John Howard is the Founder-President of the Politico Housing Complex.
    .
    Google “Negative gearing John Howard” and look at the historical record:
    .
    1. Paul Keating (Labor) removed negative gearing once and was later beaten back and forced to re-instate it.
    .
    2. John Howard (Liberal) and Simon Crean (Labor) championed for it while Mark Latham (Labor), as shadow treasurer, was looking to review it .
    .
    3. To make matters worse, John Howard halved the capital gains tax and also introduced First Home Owners Grant, allegdedly, offset the effect of the GST on home ownership.. How GST can affect the cost of an established property is beyond my understanding!! (Because it does not).

  10. Interesting that the grants go back much further than even Steve Keen claims, though the effects still support his claims they boost prices. Combined with easy credit, and arguably increasing supply restrictions, they’ve become expensive and counterproductive.

    • In his charts, Steve Keen has considered and mapped all the grants, going back to its institution by John Howard.
      .
      Steve Keen did sign a letter supporting Rudd’s temporary FHOB stimulus. But 50-50 hindsight is always a nice thing – so I don’t begrudge him that.

  11. This is another example of the road to hell in a property bust is paved with good intentions

    “Since the recent global financial crisis many superannuation funds have been underperforming and more people are turning to the option of self managed super. This allows you to invest in what you wish, yes, even property investments!

    This week’s article “How to use a self managed super fund to invest in property” provides an overview of self managed super and how property investment will help.”

    From Ray White

  12. Don’t forget that the FHOG was introduced by John Howard in response to people complaining that the cost of houses were to go up by 10%

    That is, when the FHOG was introduced it was 10% of the cost of a new house! Shame it wasn’t indexed LOL

  13. Fhog is election viagra!

    Oh yeah, you should also read the reseach submitted for viagra to get fda approval,……,lol, not what all those pub blokes tell you about viagra re hours and hours….. Far from it!

  14. A bettter solution would be for the government to pay the first 6 months of the mortgage that way at least the money will go to the first home buyer rather then the seller and the bank.
    All these grants distort the market.
    Imagine if they cut the rent assistance for the dole. Rather then increase the number of homeless the base rent would have to drop.