Introducing new incentives for First Home Buyers may actually be counterproductive…
The hottest topic in the media (as always for the past five to ten years) is housing affordability. The debate that rages from state to state, with often mildly racist undertones (and a cry out for assistance to help the Gen Y buy a modest 400sqm house with top quality inclusions and five bedrooms in the heart of a wealthy inner city suburb for their price range – $20k deposit and borrowing power of $400k). How dare Malcolm Turnbull personally not help this poor young person live the Australian Dream….
That aside, the hot topic of the poor First Home Buyer is the focal point of housing affordability. Stamp Duty Concessions, First Home Owners Grants among others are the media’s buzzwords.
On face value, it makes perfect sense to be introducing these incentives and concessions to assist those looking to get into the market. A Government leg up to assist those in need sounds like sound logic. Similarly, the Victorian Government introduced new measures this month to this effect. No Stamp Duty for property purchases up to $600k (which is the bulk of blue chip outer city stock in Melbourne), along with doubling of concessions in regional areas.
These incentives, lauded by the media and the general public as the watering hole in the steamy hot desert. The HIA have already called for these very same concessions to be introduced in NSW, with enough public pressure, they very well may be introduced over the next year.
Who are the losers? – First Home Buyers, and anyone NOT yet in the property market.
So, in essense, the losers are the ones who actually are supposed to gain from such incentives. That’s crazy talk you tell me. You capitalist pig (keep them coming, I’m used to it). But no really, the losers are honestly those who are supposed to gain.
It boils down to one basic concept. Supply vs Demand. This is increasingly pertinent in NSW and Sydney. What happens, when you take a previously inactive market segment, and give them incentives to then activate them and put them in the race. You increase demand. Now, what happens when supply levels do not increase (thanks to bureaucracy but that is another debate) at a higher rate? Demand outstrips supply.
You don’t need a Degree in Economics to know what happens next. Prices, in turn go up. Now, you will benefit if you are almost ready to pull the trigger, and you were about to buy. Considering the growth rates in Sydney (as an example), where growth can be 15-20% per annum, if you didn’t pull the trigger, the value of incentives given are almost swallowed up by the growth rates.
With the increased demand, we eventually return back to square one, where the incentives are ineffective, the hurdle remains still the deposit, and first home buyers sit again, waiting for another handout to assist them to get into the marketplace. Story sound familiar?
Let’s not forget that the incentives generally surround brand new stock, and buying a new off the plan apartment or land (or package). And who else can (only) buy brand new stock? Foreign Investors (under the FIRB laws), so lets pit the strugglers against the cashed up folk who are apparently at fault for driving the market up (misconception but I’ll not delve into that). Logic, right?
It’s a double edged sword. You might think, why do Governments then attempt to introduce these incentives if it really is counter-productive? Well, because they come out as one of the winners.
Winner Number 1 – The Government
They become the heros. The Champion of the Youth, the saviour of the dream. They are the winners. On the back of public pressure and scrutiny, they will be remembered as the mobs who looked to save the people. They are generally not in power to see the reversion back to the status quo.
Winner Number 2 – Those already in the market
Pretty simple here. If you’ve already got a foot in the market, you’ll benefit from the higher demand.
Winner Number 3 – Those who work in the market (agents, brokers).
Why they might not really care about you that much anyway – those politicians.
The bracket that most First Home Buyers fall into, the 20-34 year old age group, has had the lowest population growth from 3-3.5% in 07-08 to 1.2% in 2016, and set to drop to marginally over 0% growth between 2021-2026 (BIS Oxford Economics, ABS Data Population Growth by Age Group). The highest growth remains with the 65+ age bracket. So who benefits from driving prices up? Technically everyone, but to keep the rhetoric going, those damn Baby Boomers. They are the highest voting segment, have arguably the highest rate of actual voting (removing all the donkey votes and ‘Snapchat Votes – I’m so edgy because I drew a picture’) and therefore represent the category that politicians care about most.
Our market (economic in general) is so reliant on property, there won’t ever be any measures trying to reduce the market and curb pricing, so don’t hold your breath, and incentives will be short lived and politically fuelled.
So if you are expecting to be saved by the heroic concessions and incentives? Expect to be let down.