If you think this sounds twisted, it is. The best thing about the two sides’ various promises to help young people afford to buy their first home is the way it has provoked the nation’s economists to rise in condemnation of those schemes’ wrongheadedness. They look like they’ll help, but most of them are more likely to end up making homes less affordable rather than more.
And the parties know it. They know it because their economic advisers wouldn’t fail to make sure they knew. All economists know it, but this is the first time so many have come out and said it, joining independent economist Saul Eslake, who’s been saying it at every opportunity for decades.
You can say housing affordability comes up at every election, but not like it has this time. This time, both sides are giving it top billing. They know they can’t hope to win the election without having promises that seem to be helping would-be home owners. It’s just a pity they aren’t more sincere about it.
So what’s changed? The voting population. For years, the pollies have known that the number of home owners far exceeded the number of people hoping to become home owners. So the number of voters who love seeing the price of homes continually rise far exceeds the number who hate it.
But now, for the first time, the great lump of Baby Boomers is outnumbered by the Millennials and Generation Z. The Boomers are probably the last generation where most were able to clamber aboard the homeownership merry-go-round. And they did that a long time ago.
It’s the younger generations who’ve had the least success in dreaming the Great Australian dream. And guess what? They’re pretty peed off about it.
A recent survey by money.com.au found that housing affordability and rental stress were the dominant concerns for Australians under 40.
And my guess is that their encounter with the bank of mum and dad has helped the older generation see that ever-rising house prices is a two-edged sword. Actually, this intergenerational recycling has been one of the factors helping to keep house prices high and rising.
Why? Because by helping young people afford otherwise unaffordable prices, it’s helping keep them high, rather than falling until they became affordable. And when some new government scheme helps many people afford the unaffordable price, that tends to bid the price up, too.
If prices do rise, the beneficiaries of the scheme end up being not the buyer of the home, but the seller. And that’s been the great attraction of such schemes: they look like they’re helping first home buyers while they are actually benefiting existing home owners. Just what the politicians want.
Most people view such schemes purely from their own perspective: if the government gives me a leg-up, I’ll be able to afford this high price. That would be true if you were the only person helped. But when many people like you are helped at the same time, only the highest bidder wins.
Just about all the schemes proposed by the two parties have this effect. The Coalition’s earlier announced scheme, to let first home buyers take up to $50,000 out of their super and use it towards a deposit, also helps many rival bidders.
If there were lots of similar houses available at that price, then everyone could buy one without affecting the price. But that’s the point: the reason the price is so high is that there aren’t many available relative to the demand.
The Coalition’s new scheme is to grant eligible first home buyers a tax deduction on the interest they pay on their home loan for the first five years, provided they buy a newly built home. This may allow people to borrow more – provided the banks allow it – but just making the monthly mortgage payments easier to afford will add to the demand for homes.
And this is the scheme that frightens economists the most. It could be much more costly to the budget than expected if many more people take it up. It could be hard politically for a Dutton government to chop it off after five years. And it heavily favours high income-earners.
Labor’s huge expansion of a scheme that allows people to buy a place with a deposit of only 5 per cent because the government gives them free “lenders mortgage insurance” is a kind of negative gearing for owner-occupiers rather than investors. But it, too, would add to the demand for homes.
It boils down to this: when the demand for homes exceeds the supply of them, rising prices are inevitable. The only way to slow the rise is either to reduce demand (say, by removing the tax breaks for investors), or to increase the supply of homes by building more of them.
Labor’s scheme to spend $10 billion building 100,000 new homes across the country in a joint arrangement with the state governments on a non-profit basis and with purchases restricted to first-home buyers, is the only scheme that would increase supply and put some downward pressure on prices.
The Coalition claims its interest-deductibility scheme would add to supply because it’s limited to people buying new homes. Sorry, not true. If increasing the demand for housing quickly and easily led to an increased supply of them, house prices would not have risen to the heights they’re at today.
No, our very problem is that state government zoning requirements and an inefficient housing industry stop supply from increasing much in response to increased demand.
Labor’s scheme with the states should overcome the zoning problem, but our years of neglecting to train enough building apprentices will need a lot of fixing and could yet greatly limit the building of more homes.
There’s no quick and easy solution to our housing affordability crisis. And almost all the schemes the two sides are waving about are just for show.
But Labor does get the need to free up the supply of homes. Unfortunately, that message is yet to get through to the Coalition.
