Housing supply

First-time buyer subsidies are a failed solution to the housing supply crisis | Northern Beaches Review

There is a housing affordability crisis in Australia and both major political parties are reluctant to address the root cause of the problem: supply.

Figures put forward by Labor housing spokesman Jason Clare showed prices on the Central Coast and parts of northern Tasmania had risen by more than 40 per cent, with regional Australia overall recording a higher price increase than metropolitan areas.

Using simple economic principles, adding thousands more people to the housing market who otherwise would not have been able to get a deposit will not improve affordability. It will only make things worse.

This was pointed out by the Grattan Institute in a recent submission to the Productivity Commission which stated, “At the end of the day, housing affordability is actually worse because the extra demand drives prices up.”

Adding 10,000 spaces will increase demand, putting upward pressure on existing prices. This does not appear to address the price burden felt by a number of home buyers. The campaign speech also coincides with the results of a survey by the Property Council of Australia, which found nearly 70 per cent of young people felt owning a home would never happen to them.

Other industry associations have called on the government to address supply constraints in the market, such as working with state and territory governments to free up more land for housing construction.

Groups such as the Australian Council of Social Service also believe that the current negative gearing agreements and generous tax system for landowners are also impacting new market entrants.

The construction is also not built for a specific purpose. We build big houses and apartments in the city and nothing in the middle.

Labor and the Coalition, through these schemes, are committed to reviewing the caps on deposit schemes.

But if the price spike continues above 40%, will a bank even consider offering a loan to someone looking to take on debt at the upper limit of their borrowing capacity?

RateCity calculations show that if the Reserve Bank raises the cash rate to 1.75%, as Westpac thinks, a person with a $500,000 mortgage will pay an additional $430 per month in interest payments. This does not bode well for affordability, with repayments from these schemes generally earning more interest due to the lower equity held.

Home ownership is a cornerstone of the Australian dream, but inaction on both sides of politics is pushing that dream out of reach for most.

This story First-time buyer subsidies are a failed solution to the housing supply crisis first appeared on The Canberra Times.