Did we need another grant?
Typically, grants stimulate demand by incentivising homebuyers to bring forward their purchasing decision. In the case of HomeBuilder, the Morrison government hoped their $25,000 grant would incentivise homeowners to bring forward their start date for construction.
Program Director of Household Finances at the Grattan Institute, Brendan Coates, offered an alternative to the grant model. “Funding social housing won’t boost house prices or provide windfalls for developers. It will do more to keep construction workers on the job, while also helping some of our most vulnerable Australians.”
Speaking at the recent Economic Society of Australia’s National Webinar Series on Housing Affordability, Saul Eslake, respected independent consulting economist and former Chief Economist at ANZ, made some interesting points;
- Between the census’ of 1947 and 1966, Australia’s population grew faster than it has done in the last 25 years – Australia’s five biggest cities increased in size by 53%.
- During this period, the house price to income ratio remained stable at three, and homeownership rates increased from 52% to 72% – today, the ratio is six, and homeownership has fallen to 67%.
Australia was able to dramatically increase its population without the subsequent spike in house prices because Mr Eslake believes federal, state and local governments focused on lifting the supply of housing. During the 1950s alone, governments directly built one in five homes.
In Mr Eslake’s view, the “rot set in” when the Menzie’s government took to the 1963 election a home savings grant policy. Since then, governments have preferred to focus on policies that increase the demand for housing and have paid less attention to boosting supply.
Since the GFC, state and federal governments have been responsible for launching the First Home Owners Grant, stamp duty concessions, the First Home Loan Deposit Scheme and the First Home Super Saver Scheme.
Mr Eslake’s view is that these grants have done little to improve housing affordability. He argues that the First Home Owners Grant should be renamed the Second Home Vendor’s Grant, and the HomeBuilder Grant should be renamed the Builder’s and Land Developer’s Profit Margin Enhancement Grant as these groups benefitted substantially more from the introduction of these grants than the intended parties.
Tax policy has also played a significant role in increasing demand. Negative gearing and capital gains tax concessions have made housing an attractive proposition for investors. And these two policies often give them a distinct advantage when bidding against first-home buyers.