05/08/2003 - 22:00

Editorial - Federal interference will cost in the end

05/08/2003 - 22:00


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HOUSING affordability is being billed as a Federal election issue. On the face of it, concern for new homebuyers or, more importantly, renters wanting to become home owners, is understandable.

HOUSING affordability is being billed as a Federal election issue.

On the face of it, concern for new homebuyers or, more importantly, renters wanting to become home owners, is understandable.

In Australia, nothing is more important than the dream of home ownership – and we are all concerned when the next generation can’t afford to do the things we did.

But is this something that governments should get involved in? Should Canberra be throwing cash around?

I doubt such measures can affect housing affordability without doing anything more than creating a short-term aberration in the market.

One reason first-home costs are even an issue is because of the current Federal Government’s interference in the housing market in the form of the first homebuyer’s grant.

So many people adapted their home-buying plans to capitalise on that $7,000 offer, ostensibly to smooth the impact of the GST.

Many first homebuyers brought forward their plans, in some cases by years, in order to take advantage of this supposed free kick from the Government.

Others raised their sights and used the $7,000 input as a way of leveraging a more expensive purchase.

And this didn’t happen in just a few isolated cases. It was major investment traffic and it affected the housing market.

Not only did the grant, in its own right, probably push prices up more than an average $7,000, but the ensuing frenzy whipped up by this market interference has gone unabated for years.

It has been like a gold rush, with plenty of people prepared to believe the claptrap bleated by the increasing number of housing related television shows that preach the value of property, especially the windfall profits to be earned from a lick of paint and a well-placed rockery.

To be fair, with the introduction of the GST a looming concern and all manner of economic concerns since, the first homebuyer’s grant has proved quite a tactical play from the Federal Government.

However, it appears the music is stopping, and that worries those in power in Canberra because elections creep up quickly.

Like a finance broker who must use new investment capital to pay interest on the money he has already lost, there is a danger that trying to subdue market forces will eventually catch up with you.

Any attempt to manipulate the property market to make housing more affordable for some will only increase the risk of a bigger crunch in the future.

The fact is the market has boomed. Attracted to property by a collapsing share market, people of all parts of society have invested heavily in this market pushing prices to astronomical, some would say unsustainable, levels.

There is a real concern that some of these people will lose money, particularly in the apartment market, as the sector cools.

This, therefore, is the worst time to encourage first homebuyers with any form of artificial incentives.

While there may be a case for unlocking more State-owned land, there are also many regional parts of WA where cheaper housing may make them more competitive in the market for labour and skills.

And even in the city, in many ways, over-priced property might be a blessing in disguise for those paying rent.

While those already locked in may be stuck with an illiquid investment in a stagnant property market (not to mention the costs of maintaining the assets and meeting potentially rising interest rates payments), more flexible young investors might take advantage of the predicted resurgence in shares and other investments.

At the very least this group may be more flexible to take up job offers in a marketplace that requires increasing mobility.

In a year or two, many home owners may well be bemoaning the shackles associated with property – especially when the market is not showing double digit growth every year.

Of course, that might be the case until the share market gets too hot and crashes again in a few more years.

So the cycle goes on, no matter how much governments wish it wouldn’t.


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