Matusik Missive - Beggars Belief
By Michael Matusik
The Real Estate Institute of Australia is calling for an increase in the First-Home Owners Grant (FHOG) to offset house price movements since the incentive was introduced in 2000.
The grant was originally implemented to help offset the decline in new housing starts, resulting from the implementation of the GST. GST, remember, is payable on new homes but not established product. Not surprisingly, the grant was increased from $7,000 to $14,000 for new homes in March 2001. However, in January 2002, the additional $7,000 was reduced to $3,000, with this amount being withdrawn on 30th June 2002, leaving the original $7,000 per grant.
In October 2008, the current federal government, under the title, "First Home Owners Boost", increased the FHOG to $14,000 for established homes and $21,000 for new property. Whist the boost ended last year, first-home buyers are still eligible for $7,000 as long as they purchase something priced under $750,000.
Now the REIA want the grant increased to $15,000 for both new and established homes, and then indexed to median house price movements annually. This just beggars belief!
Whilst vendors and real estate agents have benefited (enormously, in most cases), the grant has been detrimental to first-home owners. The grant is inflationary as it has been a major catalyst behind the rapid growth in residential prices over the last ten years and in particular the last 12 months or so. This has made housing unaffordable to many potential first home buyers and has increased the size of first home mortgages by 125% since the grant's introduction. Non first home mortgages have risen by just 90% over the same period.
Also, the grant has resulted in fewer rather than more actual first-home buyers than otherwise might have been the case if no grant was offered at all! It also exaggerated the traditional property cycle and has not created many more new homes. If you don't believe this, email askus@propertysearchers.com.au for a copy of Snapshot 394.
If the government really wanted to help first-home owners, they would remove the FHOG altogether.
Removing HECS debt for first-home buyers would have more positive results; as would allowing first-home buyers to access their superannuation to help with the deposit. Better still, remove GST from new residential property altogether. New property would be cheaper and more new homes would be built.
As it is, too many real estate agents do little for the money they apparently earn and giving them more tax payers' money would be criminal. Lifting the grant would be like pouring petrol on fire. Let's please spend what little remains in the government coffers more wisely than increasing the grant.
What do you think? Air your views on "Michael's blog" at http://www.matusik.com.au/