Surprise! NSW first home buyer bribe to raise prices

By Leith van Onselen

Who would have thunk it! The NSW Government’s recent decision to grant major stamp duty relief to first home buyers (FHBs) is set to flow to vendors, who are planning to jack up prices. From The AFR:

Sydney home sellers are pushing up their asking prices to take advantage of the cuts in NSW stamp duty and increased demand from first-home buyers, real estate agents say…

Starr Partners’s Doug Driscoll has been fielding calls from vendors in Sydney’s west in that price bracket who want to “list their homes for slightly more, given that first-home buyers will soon have more to spend”.

“When first-home buyer grants were introduced a few years ago, as a group, we saw the same thing,” he said. “The market needs to find its natural level, as otherwise these measures could prove counter-productive and possibly even lead to an artificial increase in prices”.

Mr Starr also said the cuts were less of an “affordability” solution and more of a strategy to drive more first-home buyers into apartments…

“With far fewer investors as a result of the macro-prudential measures and tens of thousands of new apartments in the pipeline, who is going to buy them otherwise?” he said…

Ray White’s Ercan Ersan said an apartment seller in St Peters, who had a listing of about $600,000 to $650,000, wanted to delay his sales campaign to July 1… “This will give them a chance to extract every last dollar. They expect there will be more interest and that puts pressure on competition and ultimately drive a higher price.”

Such impacts were entirely predictable. Almost any economist not captured by the property lobby will tell you that increasing FHB’s ability to pay will just drive up demand and prices, making ‘housing affordability’ even worse (other things equal).

In his housing affordability report to the NSW Government, Glenn Stevens explicitly warned that any demand-side measure aimed at FHBs would likely be counter-productive:

…measures that seek to assist first home buyers could be more targeted. As a general observation, I personally do not favour these measures and I could not recommend extending them…

After all, giving people money so that they can afford high prices not only does nothing to lower prices, it is almost a counsel of despair…

Current RBA Governor, Phil Lowe, also testified last month that “you don’t fix [housing] affordability by boosting demand”.

As usual, the fig leaf of ‘housing affordability’ has been used by a government to prop-up the housing market, yet again throwing FHBs to the wolves.

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Unconventional Economist

Comments

  1. As I argued in my last blog, this will just give our financial regulators an even larger headache, working against their measley arse covering measures. If it really does have a material impact, then it just increases the likelihood of pro-cyclical prudential or – dog-forbid – monetary tightening.

    Such is the fate of the terminal imbalances and internal contradictions of a late stage economy-devouring bubble.The cost of letting the thing run eventually outweighs the cost of destroying it. The only question is how capably the objective can be carried out, and knowing the staggering incompetence of the Australian political and regulatory class, I wouldn’t hold out much hope of them achieving the never-before-seen “managed” bubble deflation. Especially if governments like the NSW state government continue to believe that they live in a vacuum and that it’s 2011/12 all over again.

    Nor do I believe that the punters actually buy the line about affordability any more, everyone knows what these measures are intended to do, they only differ on whether they support further market manipulation.

    Something about “enough rope”…?

  2. It’s probably another instance of grey corruption: it suits interest groups and political parties.

  3. Prices are so insane that I hope it has a very small impact. It won’t encourage me into a shitty Chinese made apartment that’s for sure.

    • Sadly you’ll be in a tiny minority. Every dollar they save on stamp duty is a dollar they can lever up 10 fold on the purchase price. Yay Sydney

      • Scott,
        You are right to an extent i.e. that scenario would have been true previously. But not anymore.

        Let me put it this way, as a FHB if I was assessed/approved to borrow 500K in 2016, the new number now in 2017 (with same income) is somewhere around 460-470K. Come July 1st, that could reduce to 450K. There is already a slow credit crunch (for retail borrowers) happening in lending…

        Welcome to 2017. One reason you are seeing banks offering “5% deposit”, “1-year honeymoon rates”, “introductory i/o for 2 years” ONLY FOR FHBs. All these offerings just to make sure, FHBs can get “that 500K loan” in 2017 instead of the new normal 460K!

        Of course, stamp duty relief might push the prices a bit but it could be negligible. But what it certainly will do is, put more FHBs into the indebted/stressed category, especially those FHBs who might have not gotten into the market if this relief was not introduced.

      • These things are going for $800k+ in Sydney. 2 beds with a view of a brick wall, or some shithead in his dacks in the block next door. Plus $4K+ for strata per year.

        I’ll take a bet either way. House horny clucky women and guys insisting on getting regular sex to prove they are a man is a strong driver.

  4. The Patrician

    In the last seven days the median asking price for a Sydney house rose by $3900 to $1,364,400. Surprise!

    • Of course, matey, the Sydney market, unlike all the others before it, is a perpetual motion machine ever and ever minting millionnairs into perpetuity and beyond. Why would one ever take a chance with anything or anywhere else, ah?

  5. Whilst every time it has been introduced prices have rocketed there is one big difference this time. There has been an exemption already for new housing. Given the bubbly crazy saying you have to be on the ladder, I’d suggest most people who could, already are in, especially with the massive amount of NEW apartments they don’t pay duty on. Also the new grant is combined with a far bigger hit to foreigners. Overpriced new apartments just lost foreigners and fhb’s.

    • Absolutely! You can expect hopeless thinker’s brain-fart to pump out ludicrous policies but they will trip once and that is enough to bring down everything.
      I suspect, stamp duty relief will be the harbringer.

      As I said in my one of my older posts, mark your calendar. July 1st is the date!

      All these vendors who are asking their agents to “hold back” until July 1st, will be in for a rude shock when “all astute vendors” flood the market after July 1st and hear crickets.

  6. TailorTrashMEMBER

    This was always the Harry subsidy to help him and his mates off load their growing inventory of shitboxes apartments ……looks the the greedy sods are unwilling to even pass it on ………well done Gladys …….the sooner this whole social disaster implodes the better ………but one things for sure ..my kids won’t be getting on the rungs of the property ladder that leads to a shit appartment and a monster life eating debt to help out Harry ………..there are better places in the world for them to have a life .

    • So it wasn’t “SUPPLY AND DEMAND” shit they kept shoving down our throats…. SURPRISE SURPRISE

    • The Patrician

      lol in the year since that story Melbourne unit asking prices have increased by 9.1%. Surprise!

  7. MSM reporting is getting hilarious by the day.
    One has “ANZ cuts interest rate” – buried inside is the fact that is only for owner-occupiers
    Another one has “ANZ hikes interest rate” – buried inside is the fact that is only for I/O loans

    They are getting desperate for clicks, it almost like visiting a p8rn website in the 2000’s anything to get the clicks up until p8rnhub came about and now most of them have gone dead!

  8. – It certainly would make houses more affordable. But alas buyers are NOT going to benefit !!! Because the selling price won’t rise. Because the stamp duty is not included in the selling price.