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Federal budget 2017: To help home buyers, Morrison might have to push up prices

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Each of the schemes the Coalition is considering to help first home buyers boils down to the same thing, and each has the same fault.

Whether it’s allowing first home buyers early access to their superannuation to build a deposit, allowing them to direct their pre-tax income into a special tax-preferred account to build a deposit, or letting their super accounts become equity partners in their homes so they wouldn’t need as big a deposit, each would give them a leg-up and bid up prices.

A price increase might be a worthwhile price to pay to get more first-time buyers into homes. A price increase might be a worthwhile price to pay to get more first-time buyers into homes. Photo: Mayu Kanamori

The sad truth is that as long as there are more people wanting homes than homes available, anything that advantages first home buyers will do it by allowing them to bid up prices. And that includes measures not often seen as allowing buyers to bid up prices, such as cutting stamp duty.

Which is no reason to write those schemes off. A price increase might be a worthwhile price to pay to get more first-time buyers into homes. They would get there by outbidding would-be investors.

A much better approach (and it could be tried at the same time as making things easier for first home buyers) would be to make things harder for would-be investors. That would help push prices down, as the Coalition acknowledged when Labor proposed it at the last election.

Because the Coalition hasn’t embraced tighter restrictions on capital gains tax concessions and negative gearing, it is left with measures that will help first home buyers (and push prices up) without the offsetting measures that would hurt would-be investors and help push prices down.

Treasurer Scott Morrison isn’t completely insensitive to the need to discourage investors. He is keen to do it where they are foreign investors buying existing properties, but not locals.

And don’t think for a moment that investors do much to expand the supply of properties. In March only $1 in every $12 lent to “investors” went to build new homes, compared with $1 in every $8 lent to people who planned to live in them.

Peter Martin is economics editor of The Age.

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