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 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 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%:
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.
