Vested interests squeal at FHOG changes

By Leith van Onselen

As expected, vested interests have slammed the sensible changes to Queensland’s First Home Owners’ Grant (FHOG), in which the $7,000 grant on all dwellings will be replaced by a $15,000 grant on the purchase of new dwellings only.

The REIQ strongly opposes the changes, arguing that first home buyers prefer established homes, therefore, the grant is likely to significantly weaken the market for established homes without improving overall first-home buyer affordability.

Similar attacks have been made by buyers’ agents, like Simon Pressley, who claims that the changes to the FHOG will supress turnover, therefore, hurting the overall economy:

Governments would also do well to understand property cycles before developing policies. A buoyant first-home buyer market is a buoyant economy for everyone. Benefits from increased first-home buyer activity extend far beyond people establishing a footing in their own homes. Increased first-home buyer activity is often the first phase of price growth. Initiatives targeted at encouraging first home buyers causes competition in property markets, encourages investors to become more active, and is a proactive way of releasing this country’s heavy reliance on tax-payer funded pensions.

Increasing property transaction volumes creates jobs in real estate and other service industries, improves retail spending, creates more opportunities for blue-collar tradies in the form of renovation projects, and increases loan volumes for banks. Consumer confidence increases across the board. Governments get a clip of the ticket all the way through via stamp duty revenues, GST receipts, and payroll taxes. The cycle starts with the first-home buyer, not the investor. Policies need to be targeted to encourage first-home buyers, not restricting them!

Even the Queensland Opposition Treasury Spokesman has joined in the attack, arguing that it is mean of the Government to deny grants to first-time buyers of pre-existing homes, as would kill the great “Australian Dream” of home ownership:

“You ask any parent across Queensland and they’re going to tell you that one of the things they want is for their kids … is to get a part of the Australian dream,” he told reporters in Brisbane.

“This scheme, for many potential future homeowners, is killing that Australian dream.”

Of course, most observers not attached to the umbilical chord of the real estate industry would support the FHG changes, as they offer to simultaneously reduce demand for pre-existing dwellings while at the same time boosting the supply of new dwellings, thereby placing downward pressure on home prices and boosting affordability.

A quick examination of housing supply data for Queensland shows that housing construction slowed significantly over the 2000s as population growth accelerated (see below chart).

In fact, in the decade to 2011, Queensland produced 0.43 new homes for each new resident, compared to 0.54 new homes per new resident in the decade to 2001. In a well functioning market, supply should increase as price increases. However, in Queensland, the opposite occured – the supply of new homes actually decreased over the 2000s as prices surged.

The contraction in housing supply is also reflected in Queensland new house sales, which have been trending down for a decade:

Construction employment, which has also been supported by mining-related investment, has similarly contracted recently in Queensland, in concert with the housing construction downturn. Obviously, the changes to the FHOG should help to arrest this slide, countering the decline in real estate related jobs (e.g. real estate agents):

Supply-side measures, like those implemented in New South Wales and Queensland, should be applauded. While they obviously could go much further – for example by removing artificial barriers to land supply (e.g. urban growth boundaries), government taxes on new developments (in favour of longer-term bond financing), and speeding-up development approval processes – they are a huge improvement on offering grants to buyers of pre-existing dwellings, which do nothing but inflate prices and reduce housing affordability.

I am also glad to see that the Newman Government has brought the start date for the new home contruction grant forward to today to lessen the distortions to markets that have marked other state’s removal of FHOG policies.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

 

 

Leith van Onselen

Comments

  1. 0.43 properties per new person is OK isn’t it? Assuming the average 2.6 people per household it would seem supply is increasing. Plus aren’t all these new people responsible for the burst in population growth babies? They certainly don’t add to housing demand.

    Great policy anyway.

    • You forgot about the replacement of demolitions. These will get picked-up in the construction figures but don’t add to overall supply. There are also a lot of holiday homes in QLD, given it’s a prime tourist destination.

    • It would be great if this piece got a run in the Qld MSM.

      Speaking of vested interests, there is a Saturday morning spot available for an independent residential property analyst on ABC radio, if anyone is interested.
      Michael Matusik and Qld ABC Radio 612 have recently parted company after a segment involving Matusik was found to have breached ABC editorial policy.

      Apparently Mr Matusik now appears on commercial radio.

  2. Any chance you could do a piece on these mysterious ‘property cycles’ that only those who work in the real estate industry seem to understand?

    • I would explain it thus. Think of it as a large elastic band attached to the rear bumper of a car. Hanging onto that elastic band are developers (both land and construction) architects, town planners, RE agents, property commentators, and a few others all on roller skates.

      When the vehicle takes off the hangers on remain stationary for a period, then suddenly they take off as well but they can’t actually catch the car while it accelerates across the tarmac.

      At some point the car slows, gradually at first and then it all but grinds to a halt. That’s when all of the hangers on rocket past the car at speed. Some will have seen it coming and they will plan their trajectory, others won’t be so lucky.

      Some years later the car roars into life again when everyone suddenly realises that the tank is full again.

      If you can understand that, then you are fully informed. It’s a study in market inertia.

    • Let me explain one characteristic of this mysterious ‘property cycle”.

      20% gain in a year and none of the RE propagandists call a market top.

      5% fall in a year and all sorts of RE propagandists will be falling over themselves in calling a market bottom.

      i.e. They teleport themselves to planet Mercury when property prices are on the down cycle and to planet Neptune when it is on the up cycle.

  3. Leith couldn’t agree more we still need planning reform in a big way. Unfortunately I only share enthusiasm for this incentive if they do this. Otherwise I will it will mean houses are older, more delapidated as the gap between new and used houses widens

  4. Perhaps if Qld did not have such high population growth it would not need as many new homes. It would also be able to save a heap of money on infrastructure expansion and therefore hopefully not be as bankrupt as it currently is. Heck if the property spruikers really wanted to improve affordability they should have a look at the population ponzi the federal government is running and protest against that.

    • But our civilisation has experienced FAR HIGHER population growth rates (eg in the 1960’s) without governments throwing up their hands in horror at the cost of infrastructure. It is not rocket science that there is a happy balance between the payers of local taxes and the paying off of infrastructure for those local taxpayers, over the life of the infrastructure. More population, more infrastructure, more taxpayers. Where is the problem here? Let’s have less of the insupportable excuses from the enviro-preserving eco-Taleban, please.

      • Jumping jack flash

        bloat and inefficiency are primarily to blame, this is the problem with almost all undertakings, public and private, in all advanced economies of late.

        When every dollar claimed in taxes and revenue has to support more and more leeches, then the burden of actually producing something useful becomes too much to bear.

        So naturally they outsource their productive activity at additional cost, while keeping the unproductive leeches that should be doing this work on board, and multiplying.

        • +1

          I wasn’t going to prolong my comment by going into that, but you might as well have been reading my mind.

  5. The REIQ strongly opposes the changes, arguing that first home buyers prefer established homes, therefore, the grant is likely to significantly weaken the market for established homes without improving overall first-home buyer affordability.

    Que? If it “significantly weakens the market for established homes” then by definition it improves first-home buyer affordability. What is that REIQ spokesman smoking?

      • Absolutely everyone smokes that brand. They are specifically employed to act in the interests of their members.

        Of course this policy will drive demand towards builders and land sales instead of existing builds, which is where the majority of REA’s get their commissions from. Their comments are perfectly natural and expected – I would think less of them if they said nothing.

        Meanwhile the construction industry in Qld has the opposite point of view, and that is also to be expected.

        Alex on the other hand, has his own point of view, which incidentally suits his vested interest, and of course that to is to be expected.

        The Kennedy’s posed the question “ask not what your country can do for you, but what can you do for your country?

        And then they shot them.

        The world of commercial interest is not full of selfless martyrs, but there is no ambiguity in that, and nor should we expect it.

        • Which vested interests are worse? People who build houses in response to market demand, and sell them, and make honest margins and honest profits, employ people, pay taxes, and contribute to the REAL economy. (Similar could be said for car manufacturers, road builders, and even “big oil” – all these interests being the favourite bogeymen of the anti-sprawl loonies).

          But what about the vested interests who make massive capital gains, by way of a wealth transfer upwards from the bottom of society, just through the enactment of anti-growth restrictions, which force up the price of all urban land? I am not just talking about land bankers on the urban fringe, everybody from the fringe to the centre makes a killing, and the biggest killings of all are made at the centre where land is the most expensive.

          So it is quite logical for “big property” to be covertly funding “anti-sprawl” activist groups and bureaucrats, and I suggest that some anti-corruption crusaders start doing some serious sleuthing in that direction. I will not suggest any names – YET. YOU KNOW WHO YOU ARE.

          And I bet the good MB site owners will field some flak over THIS comment; Leith; David: just ask them if the truth hurts, and would they like to be the first to be investigated?

          • Sometimes I wonder if the various anti sprawl, and NIMBY anti consolidation groups act as useful idiots for the finance sector. I also wonder how many engage in the cognitive dissonance of being anti sprawl, anti consolidation, but pro-migration.

        • The issue does not simply reduce down to ‘vested interests’ and the claim that as everyone has dirty hands one should not judge some particularly grubby paws too harshly.

          An efficient market for delivering housing is what we are talking about.

          As government subsidies tend to distort a market more than assist its efficiency, fewer subsidies are generally better.

          But to the extent there are going to be subsidies it is sensible, when the population is growing, that they are directed to the creation of new housing stock rather than boosting the value of the existing stock.

          Good to see PF back in the saddle.

  6. I think it’s a great policy change. Most punters will just see the raised grant figure of $15,000, think they’re getting more and proceed to ignore the small details.

    On the other hand, if they’d gone out and said that value of houses currently owned will immediately drop by $7000…

  7. Simon Pressley, “…encourages investors to become more active, and is a proactive way of releasing this country’s heavy reliance on tax-payer funded pensions.”

    Reminds me of the time when I got some food delivered then discovered to my chagrin that I had no cash, it was ok though because I paid with my letterbox.

    • Hahah, I didn’t see this

      releasing this country’s heavy reliance on tax-payer funded pensions.”

      No, it just becomes reliant on robbing young people of a reasonable future.

      • What a swell idea, move the reliance from tax-payer funded pensions to tax-payer funded property handouts.