The weekend’s announced changes to the Victorian First Home Owners Grant (FHOG), which will see the $7,000 grant on pre-existing dwellings abolished on 1 July 2013 in favour of an expanded $10,000 grant on new builds, has received a mixed reception from the Property Industry.
As expected, the Real Estate Institute of Victoria (REIV) is not happy, arguing that the Victorian Government should stop tinkering with the system and claiming that affordability for the majority of first home buyers (FHBs) will be adversely affected:
With around nine separate changes made to first home buyer assistance over the past five years in Victoria, most planning to buy a new home would be right to be a little confused and wondering what will happen next. Many will have to save more; some will try and bring purchases forward…
Governments know that first home buyers are very price-sensitive and they will respond to financial incentives. Indeed, in the short term, we expect a rise in the number of first home buyers who seek to avoid losing the $7,000 grant on established homes. This happened last year in Victoria when the ‘builders bonus’ ended and in New South Wales as well.
Each of the changes has an impact on the market and forces first home buyers to reevaluate their position. From the REIV’s perspective, it really is time that the government stopped tinkering with first home buyer assistance.
The REIV called for, and strongly supported, the introduction of stamp duty cuts as they are an efficient and easily understood way of helping first home buyers…
This latest change, where the majority of first home buyers will be worse off, should be the stimulus for a reassessment of how first home buyers are assisted by governments. There seems to be little point of working to make housing more affordable through ensuring adequate levels of supply if, at the same time, the net levels of financial assistance are reduced.
The changes, as they apply to established homes, effectively reverse most of a 25 point cut in interest rates, seemingly running counter to the monetary policy decisions of the Reserve Bank.
With that in mind, surely the simplest and most efficient option for governments would be to charge first home buyers no stamp duty whilst ensuring adequate levels of supply.
Property Observer’s Jonathan Chancellor was equally scathing of the stamp duty changes, describing them as “extraordinary” and “ill-directed”, whilst claiming that the Federal Treasurer, Wayne Swan, had abdicated his responsibilities by not demanding that the states offer the grants to all FHBs, not just those purchasing new builds.
At the other end of the spectrum is home builder Hotondo Homes, which has praised the FHOG changes, arguing that they will “kick-start” the construction industry and boost employment:
Research conducted by Hotondo Homes across its 29 Victorian franchises shows an average of 85 people are required to be on site at some stage during the building of a new home…
In almost all cases, these are local people involved in the manufacturing of new homes…
By restoring the grant, the Victorian Government has provided the building industry in Victoria the kick-start it needs and will help the unemployment rate in the state as well.
While I agree with the criticism that the constant changes to the FHOG are disruptive, the fact remains that it was a flawed market-distorting subsidy from the start and should never have been implemented in the first place. And although I am no fan of subsidies in general, I would rather see taxpayer dollars stimulate new housing supply, placing downward pressure on prices and rents, than simply inflating the price of houses already built. In this regard, the FHOG changes are an improvement in my view, albeit far from perfect.
That said, I also agree with the REIV that stamp duty is a highly inequitable and inefficient tax. However, it adversely affects both FHBs and trade-up/down buyers alike and, therefore, should be phased-out entirely. As argued yesterday, the first best option would be to completely phase-out both FHOGs and stamp duty, replacing them with a broad-based land tax levied on all residential land, with concerns about double taxation overcome by crediting buyers with the amount of stamp duty paid offset by the hypothetical land tax they would have paid since the date of purchase.
