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
(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.
(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!