Victoria's new FHB strategy follows in the footsteps of other states' failed efforts: Terry Ryder
Good grief. Another state government, for want of an original idea, has decided to pursue the same first-home buyer strategy that has failed elsewhere.
Victoria's political leaders, whose only motivation in government appears to be appeasing friends and donors in the development industry, has announced a small grant for first-home buyers, but only those opting for a newly constructed dwelling.
Victoria is following the lead of Queensland, New South Wales, South Australia and Tasmania, but is being less generous than most of the those states.
The problem is, the (more generous) schemes in other states aren't working. Queensland, faced with a poor response to its handout for first home builders, recently had a stroke a genius and re-launched the same scheme with a new name.
Victoria's Treasurer Michael O'Brien seems to think his version, despite being less benevolent than the ones that have failed in other states, will kick start a building boom.
O'Brien, in describing the "benefits" of this policy fart, has inadvertently explained why it won't work. He says the combination of the grant and the stamp duty concessions will mean a $16,500 boost for first timers building the average new house, which costs around $400,000 in Melbourne.
The key factor is the $400,000. There are lots of places around Melbourne where young buyers can find existing a houses and apartments for considerably less than that. In many cases, for $100,000 less.
As the REIV points out, in criticising the government decision to restrict the benefits to buyers of newly constructed homes, most first timers buy existing homes. They're a lot cheaper and often better located. Across Australia, 85% of first-home buyers opt for established dwellings.
If state governments want to help young Australians seeking a first home, why are they assisting only 15% of them?
The answer: there's no benefit to the developers who are a prime source of donations to the major political parties and who have way too much influence on the decisions of the Victorian state government.
Another valid question: if you really want to stimulate the building industry, why only first home buyers? They're a tiny portion of the market and handouts to an insignificant minority will not create a construction revolution.
To have a meaningful impact, grants need to be a lot larger than $10,000 and they need to be extended beyond first time buyers. And rather than a stamp duty concession, the tax needs to be eliminated altogether. That was supposed to happen with the introduction of the GST.
But even then, at best, the only outcome would be a small short-term distortion of the market. Grants are not, and have never been, the answer.
Politicians continue to tinker at the fringes of the real estate industry. Some think they can solve the affordability problem by releasing more land. Other think small handouts to young buyers will make a difference. Others believe removing tax breaks for investors is the answer.
None is willing to face the real issue: the impact of taxes and charges at all levels of government on the cost of housing.
Terry Ryder is the founder of hotspotting.com.au
