The government’s successful HomeBuilder program helped drive housing investment to a record high, with loan commitments topping $30 billion in March, data released yesterday from the Australian Bureau of Statistics shows.
But the end of the program and surging house prices are setting the stage for a surge in housing inequity.
In May last year housing lending was down to $16 billion. In June the government announced its HomeBuilder package for the construction sector, and it has been wildly successful: housing finance first returned to pre-pandemic levels and by the final quarter of 2020 was hitting all-time record highs.
The package, along with record-low interest rates and a brief fall in house prices in 2020, encouraged a wave of first-home buyers into the market. In July, lending to first-home buyers reached more than $10 billion for the first time since the Rudd government’s stimulus program, and steadily rose to more than $16 billion in February. That means nearly 40,000 extra households purchased their first home than would otherwise have been the case.
But that began to turn this year. The HomeBuilder grant was cut back to $15,000 from the start of the year, and applications closed in April. The value of loans to first-home buyers fell in March for the second month in a row. Now investors are piling into the market. Loans to investors rose by more than 12% in one month; they exceeded loans to first-home buyers for the second month in a row and reached the highest level since 2017.
While HomeBuilder is going to cut out, the taxpayer subsidy to investors via negative gearing will continue to tilt the playing field towards wealthy asset owners.
HomeBuilder was good policy. Not merely did it work in supporting the construction industry which was facing a serious crisis, and help first-home buyers take advantage of comparatively benign market conditions, but much of it went into new residential construction, which has risen more than 120% over the past 12 months, increasing the supply of housing stock.
But now investment in new construction is falling — albeit from a high level — and investment in existing housing is surging.
With interest rates unlikely to fall further and investors entering the market in force, the squeeze on younger and low-income buyers is likely to return, exacerbating inequality and further rewarding asset owners — supported, naturally, by the taxpayer. That in turn will place pressure on the Bank of Mum and Dad, the country’s ninth largest residential mortgage lender, and further entrench inequality as the children of asset owners find it easier to become asset owners themselves.
Will the government declare mission accomplished on construction industry support in next week’s budget, or look for a way to support first-home buyers — given reducing support for investors seems off the political agenda.
What should the government do to support first-home buyers? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication in Crikey’s Your Say section.
It’s a no-brainer of course.Get rid of negative gearing which only benefits spivs, pimps, touts, bludgers, urgers and other lowlifes.Also, only allow Australian citizens to purchase and own houses in Australia.Set a limit of two houses for ownership purposes, and as far as capital gains tax goes, those who own more than two houses, tax them until the pips squeak.They are all Tory voters anyway so who cares
No it wasn’t good policy. It reinforced the divide, it did SFA for social housing or other much needed public infrastructure. It did reward LNP voters, both tradies and recipients. Where’s the economic analysis, Crikey? Have a look at The Australia Institute for starters.
If we are going to do social housing then governments need to stay out of it except for the financing of it, government social housing is a future slum.
”government Social housing is a future slum.”
I’ll put it politely – this is nonsense. There is plenty of government-financed housing in Australia, it works just fine and no one bats an eye. And private enterprise in this area clearly doesn’t work or we wouldn’t have the homelessness and affordability crisis we have, now would we?
Another middle class analysis from BK in Crikey. The issue is not about owning a home. If you’ve got one you can have five. The real issue of AFFORDABILITY in Australia is the 33% who rent, and their rents, mostly at the hands of investors range from gouging (to pay the investors mortgage) to enforced homelessness. Let’s see you tackle that one BK.
There is a lot of housing/ apartment stock in Australia that are empty because investors are after the capital growth aspect and renters are too much trouble.
“HomeBuilder was good policy.”
Was it tho?
In my opinion investing in social housing would have been a much better policy and the benefits of that would be much higher, not just in financial terms.
For the most part HomeBuilder just piled on where there wasn’t much need for that. In our area for example people who have planned to build sometime in the near future rushes to do it now to take advantage of the perks. All without exception older people, relatively comfortable, building for retirement.
As for the first home buyers there was an analysis somewhere (The New Daily?) laying out in very clear terms how these ‘favourable’ circumstances right now (low interest rates, lower house deposit requirements, government perks etc.) will potentially translate into much higher costs over a lifetime of a mortgage. Up to $140K depending on the size of the mortgage, interest rates and so on.
Also, I don’t think that tradies are the ones in need of special government assistance ahead of many others. But hey, you’ve got to buy your votes, right?
Fairly well analysed. I understood that you had to have around $150,000 to gain I think $40,000 grant, this would not help most first home buyers. It has helped create a ridiculous scenario of unaffordable housing throughout the whole of Australia, not just capital cities.
unaffordable housing and unaffordable tradies. Again, anecdotal evidence from our area. The increases in hourly rates are ridiculous. Sure, they’re partly due to increased material prices which are the result of the rush to build, but still…
How does all of this help us non-tradies who don’t want to build, either because we don’t need/want to or can’t afford to?
Government support for first home buyers* Well a decent job would be a good start. I don’t understand why people flocked to buy a new home when the grant offered will only pay for part of the kitchen. Grants are also soon lost because builders up their prices, I know I’ve been in the housing industry for nearly 50 years.