It’s time to remove housing stimulus punch bowl

Independent economist Saul Eslake warns that government grants for first home buyers (FHBs) are driving up house prices and should be phased out. AMP Capital’s chief economist Shane Oliver agrees that it is now appropriate for governments to withdraw or scale back housing incentives:

“The money [from these grants] usually ends up either in the pockets of vendors or in [the] profit margins of builders and developers … and therefore tend to result in not more people owning homes, but creating more expensive homes”, Mr Eslake told The New Daily.

“Why is the government tapering or terminating [JobKeeper and JobSeeker], but isn’t willing to do the same thing with cash grants for first-home buyers?”…

AMP Capital chief economist Dr Shane Oliver… [said it’s] “time to empty the punch bowl or at least reduce the alcohol content” of schemes such as the First Home Loan Deposit Scheme and state-level stamp duty concessions.

These are sensible observations from Eslake and Oliver.

Government incentives have helped push FHB mortgage commitments to record highs after rising 73% year-on-year in January 2021 to $7.2 billion:

Australian first home buyer mortgages

Australian FHB mortgage commitments have never been higher.

For only the second time in recorded history, the share of FHB mortgages has also overtaken investors:

FHB vs Investor mortgages

FHB mortgage demand has overtaken investors – a rare occurrence.

Whereas the average loan taken out by FHBs has swelled in size, rising from about $500,000 in 2019 to around $650,000 as at January 2021, and increase of around 30%:

Average FHB loan size

The average loan size taken out by FHBs has soared, whereas it has remained relatively stable for upgraders.

By comparison, the average size of upgrader mortgages has been comparatively stable.

It is fair to conclude from the above that it is FHBs that are driving the current boom in Australian property values.

Accordingly, it makes sense for the government to remove some of the heat from the market by withdrawing stimulus measures.

These stimulus measures were introduced last year during the height of the coronavirus downturn when the economy was facing a deep and protracted recession. They make no sense in today’s economic climate.

It’s time to remove the stimulus punch bowl.

Unconventional Economist

Comments

  1. pyjamasbeforechristMEMBER

    Sorry – but us FHB are all fighting over scraps at this point, removing assistance just shuts the door on us completely.

    What’s really needed is removal of investor incentive live NZ just did to push investors to sell thier most of the year vacant airBNBs stock to increase the stock for us poor FHBs to live in!

    • kannigetMEMBER

      While I agree that removal of investor incentives is needed I disagree with your assertion that removal of FHB just shuts the door.

      If you stop fighting over the scraps property prices stagnate, and that will take the heat out and as people realise the market has plateaued any speculators will bail, and others will take whats on offer instead of holding out.

      Its like watching people complain the balloon is too hard to blow air into but instead of letting the excess air out they keep fighting to be the one blowing more air into the balloon.

    • darklydrawlMEMBER

      I would argue what is really needed is a real estate price crash of epic proportions – say 80% down.

      That’ll be painful, but it would work. It is also likely baked in and probable at some point – although getting the timing correct is stupidly hard to do.

  2. reusachtigeMEMBER

    It’s when the punchbowl is emptied you throw your keys in and the party really begins!

  3. darklydrawlMEMBER

    “government grants for first home buyers (FHBs) are driving up house prices and should be phased out”.
    FMD!! The evidence for this is solid and it’s been known about for at least 30 years now. Why is it even in question? Let me take a gues – It is sneaky feel good politics which has great optics on nightly new despite being a terrible and harmful policy.