The Turnbull Government’s Budget measures to address housing affordability are expected to include extending salary-sacrificing to first-home buyers (FHB), which has drawn praise from the property lobby. From The Australian:
Chief executives of two of Australia’s biggest housing developers have welcomed an expected federal budget initiative that will help first-home buyers save for a deposit…
“The idea that a first-home buyer can put some of their pre-tax money away like they have in the past for super to help build a first deposit sounds like a sensible option if it is implemented,” Stockland chief executive and managing director Mark Steinert said…
Rory Costelloe, founder and executive director of Villawood Properties, also backed the first home saver policy, which he said was a better idea than “gifting” money through first-home buyer grants.
“Grants can be inflationary and drive up prices, but saving up your own money, that you have earned, is showing an actual ability to save for a deposit,” he told The Australian Financial Review…
Zoe Pointon, co-CEO and co-founder of estate agent comparison website OpenAgent, said the first home save initiative was “likely to only fuel further house price growth, not make houses more affordable in the long term to first time buyers”.
Ms Pointon is correct. As noted on Thursday by RBA governor, Phil Lowe, “you don’t fix [housing] affordability by boosting demand”. Economics 101 tells us that this latest bribe from the Coalition would increase FHB’s ability to pay, thus adding further demand to the housing market, bidding-up prices, and therefore making housing affordability even worse.
As we keep saying, housing affordability can only be improved via policies that reduce demand and/or increase supply. Reform should focus on areas like:
- Slashing immigration to sensible and sustainable levels [reduces demand];
- Undertaking tax reforms like unwinding negative gearing and the CGT discount [reduces speculative demand];
- Tightening rules and enforcement on foreign ownership [reduces foreign demand];
- Extending anti-money laundering rules to real estate gatekeepers [reduces foreign demand]; and
- Providing the states with incentive payments to:
- undertake land-use and planning reforms [boosts supply];
- swap stamp duties for land taxes [boosts effective supply]; and
- reform rental tenancy laws to give greater security of tenure [reduces demand for home ownership].
The property lobby is merely talking its own book by backing this FHB bribe, which will only drive further house price inflation.
