- The Morrison government has unveiled a range of new housing policies ahead of the Federal Budget on Tuesday.
- It will allow first home buyers to access up to $50,000 of their super to buy a property, guarantee 10,000 loans for single parents with a 2% deposit and 10,000 more first home buyers with a 5% deposit.
- Economists warn the measures will simply inflate prices in a hot market, hurting affordability and the retirement prospects of Australians.
- Visit Business Insider Australia’s homepage for more stories.
The Morrison government will guarantee the loans of up to 10,000 single parents as part of a wider bid to push more Australians onto the property ladder.
Under a new Budget proposal, applicants approved as part of the four-year scheme will need just a 2% deposit to buy a home.
Similar to previous first homebuyers schemes, the plan will lower the barrier to enter the property market by tens of thousands of dollars and negate the requirement for mortgage insurance.
It is one of three key housing policies the Morrison government looks set to hand down in the Federal Budget on Tuesday night.
The government will also increase the amount Australians can withdraw from their superannuation under the First Home Super Saver (FHSS) from $30,000 to $50,000, as prices continue to surge out of reach for many.
Finally it will extend the First Home Guarantee to a further 10,000 first homebuyers, allowing them to purchase with a 5% deposit.
The policies help the Morrison government achieve a few key goals with its Budget. The first falls in line with a campaign led by Liberal backbencher Tim Wilson, boiled down to the facile four-word slogan ‘Home first, super second’, to prioritise homeownership as a key to a sustainable retirement.
The second major policy target for this ‘women-friendly’ budget is to appease some of the resentment whipped up in the electorate by recent scandals. With single mothers making up nearly 80% of single parent families, the government guarantee marks one such policy as it looks ahead to a possible election.
Prices will rise as a result of these policies, economists argue
Politics and votes aside, the problem with these kinds of policies is it inevitably drives prices higher.
“[First home buyer] schemes from all governments always target purchasing power as this works politically – yet it is all but unanimous among economists that doing so adds momentum to the price rises of homes these people are trying to buy,” IFM Investors chief economist Alex Joiner said in a tweet.
Rather than directly targeting the structural issue of affordability, such policies are often criticised for simply inflating demand in markets not in need of it.
One glance at homes selling at auction over the weekend and for the entirety of 2021 so far all but confirms that.
“A May record 2,563 auctions were reported in auction capitals on Saturday which was an increase of 12.1% over the previous weekend and second highest offering of the year so far behind only the Super Saturday of auctions of March 27th,” Archistar economist Andrew Wilson said.
“Again the surge in auction number failed to dent clearance rates with a national average of 83.1% just below the 83.3% recorded the previous weekend.”
It’s only logical then that lifting more buyers into the market will only help drive prices higher as they compete in an already crowded market.
The fact the government is arming those same first home buyers with more buying firepower gives sellers a reason to “rejoice” according to economist and former Gillard adviser Stephen Koukoulas.
“We are about to see an extra $20,000-plus transfer from first home buyers, now also with their retirement incomes shattered, straight into the pockets of sellers,” he said, calling it a “really silly policy”.
While the stated claims may be noble – giving single mums and young people a hand up – the strategy runs the risk of actually obstructing both groups from buying a home, and hurting affordability rather than improving it.
Neither outcome is likely to curry much favour with frustrated buyers in the long term.