Threefold boost for Geelong housing market: Pete Wargent

Well, the Andrews Labor Government is really throwing the kitchen sink at the regional Victorian housing market. 

Two days ago, it was announced that there will be a $20,000 first home owners grant for buyers in regional Victoria: 

"The First Home Owner Grant will be doubled in regional Victoria, helping thousands of Victorians buy their first home...the Grant will increase from $10,000 to $20,000, commencing 1 July 2017."

The increased grant will also be available to first home buyers building homes valued up to $750,000.

With some first home buyers struggling to get into the Melbourne market, the most clear-cut beneficiary of this policy will be the Geelong housing market being located ~45 miles south-west of the state capital. 

Around 17,000 persons presently commute from Geelong to Melbourne daily, about 12,000 by road and the remainder by train.

The other likely beneficiaries will be the 'B cities', being the housing markets of Bendigo and Ballarat respectively.

Stamp duties waived

Going an inflationary step further, the Andrews Labor Government chimed in again over the weekend with another price-boosting policy:

"Stamp duty will be abolished for first home buyers for purchases below $600,000, helping thousands of Victorians find their first home, as the Andrews Labor Government tackles housing affordability head on.

Those buying a home valued between $600,000 and $750,000 will also be eligible for a concession, applied on a sliding scale. 

The exemption and concession will apply to both new and established homes, in a move that is expected to help 25,000 Victorians find their first home."

This is also very significant, particularly given that Victoria has more punitive stamp duties than New South Wales and a number of other states and territories.

Some buyers with a 5 per cent deposit will also be afforded the opportunity to co-purchase a dwelling with the government from next year.

Timing blunder?

How the above measures will serve to boost entry level prices in the regional housing markets of Victoria is clear enough. 

What may be slightly less obvious is that since the grant will only become applicable for contracts signed from 1 July 2017 to 30 June 2020,  by telegraphing the policy changes months in advance the government has perhaps inadvertently presented opportunistic investors a window within which to hoover up entry level stock.

In a similar vein the ALP's election pledges to restrict negative gearing deductions and remove the capital gains tax 'discount' have to some extent drawn more investors into the market in order to beat any potential future deadline.

These newly-announced measures are therefore potentially a mixed blessing for the first home buyers in Victoria.

On the one hand the announcements make entering the market potentially easier by offering both a $20,000 grant and a stamp duty exemption.

On the other hand, those unable or not feeling compelled to buy are all but certain to see entry level prices gravitate higher. 

Finally, if all of the above wasn't enough meddlesome manoeuvring, Treasurer Morrison noted that the Coalition is working on a housing affordability package of its own, with all to be revealed in the May budget. 

The wrap 

Evidently this will be a boost for regional Victorian housing markets. 

It's worth noting that such measures may inflate housing markets by a greater magnitude than the apparent dollar value of the twin benefits, since market participants can potentially use greater leverage as a result of needing a lower deposit and requiring no savings for stamp duty.

It's not hard to envision prices in Geelong moving 20 to 30 percent higher by June 2020, particularly in the sub-$600,000 bracket.

PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.

His latest book is Four Green Houses and a Red Hotel.