Over the weekend, we saw both sides of politics ‘jump the shark’ on housing policy.
The Albanese government effectively announced a state-sponsored subprime mortgage scheme by promising to allow all first home buyers to purchase a home with only a 5% deposit, with the government guaranteeing up to 15% of the loan value, thereby eliminating the need for lenders’ mortgage insurance.
The scheme will not have income caps or limits on the number of places available, and it will be available to virtually every first- home buyer in Australia.
The Coalition also announced that, if elected, it would make mortgages tax deductible on interest paid on the first $650,000 for first-time buyers of new homes.
Under the Coalition’s policy, all first-time home buyers earning up to $175,000 if they are single and $250,000 if they are part of a couple would be eligible.
The Coalition estimated this would mean a first-home buyer who earns $120,000 a year with a $650,000 mortgage at 6.1% would receive a benefit of around $12,000 a year.
Both policies are deplorable as they will increase borrowing capacity, bid up home prices, and make housing structurally less affordable.
They would also worsen the structural budget deficit and result in Australians—already among the most indebted in the world—carrying bigger mortgage debts.
Economists have universally condemned the policies announced by both parties over the weekend.
“They are stoking up the demand side, which will mainly show up in higher prices”, former RBA governor Ian Macfarlane told The AFR.
“Both sides should be dialling back the demand-side subsidies”, said economist Richard Holden. “We know that they just fuel prices”.
“It is purely about demand and it’s extremely complex, at a time when the housing market is crying out for supply”, Australian National University economis Bob Breunig said.
“Both parties are putting a rocket under demand and thus house prices”, economist Steven Hamilton said.
“In the extreme, Labor’s policy runs the risk of stoking a sub-prime crisis. And the Coalition’s policy blows a permanent hole in the income tax system and is extremely regressive”.
“This is a bad day for aspiring home-buyers”, economist Saul Eslake said.
“They will take out bigger mortgages. And so house prices will go up. As they always do”.
“Like the majority of housing experts in Australia, I think it’s a problem when you subsidise demand”, economist Peter Tulip said.
“If you boost demand then the lucky beneficiaries will bid higher on prices and that will be good for them but it will make houses more expensive for everybody else”.
Independent economist Chris Richardson labelled the housing policy offerings from both parties “dumb policy” and a “dumpster fire of dumb stuff”.
“Australian housing suffers from too much money chasing too few homes, so adding to the extra money going in results in ever higher prices. Ditto the opposition’s plan to allow first-time buyers of newly built homes to be able to deduct mortgage payments from income taxes”.
“More money chasing the same amount of housing is the most well worn path to failure in Australian policymaking, and both the government and the opposition seem intent on proving that they can double down on that dumbness yet again”, Richardson said.
One thing Australia’s economists seem to agree on is that politicians have ‘jumped the shark’ on housing policy and intend to blow the world’s biggest price bubble.
Australia’s housing policy is a race to the bottom.
