Housing as a 'good thing'

The only result of policies which put additional cash into the hands of intending first-home buyers and thus allow them to pay more for the homes which they wish to buy is that housing has become more expensive than it would have been in the absence of those policies. Indeed, it would be more accurate to describe the First Home Owner Grant as a Second and Subsequent Vendor Grant, because more often than not, that’s where the money ends up.

This probably explains why the home ownership policies long favoured by Australian governments remain so popular, despite their conspicuous failure to achieve their stated objective. There are close to six million home-owning households in Australia, nearly all of whom believe (rightly or wrongly) that rising house prices make them richer; whereas in any given year since the introduction of the current First Home Owner Grant scheme there have been on average only 125,000 successful first home buyers, for whom rising house prices are a negative (at least up until the moment at which they join the club of home owners, when their perspective on rising house prices typically undergoes an abrupt change).

And that, in turn, is why Australia’s housing affordability problem will almost certainly never be “solved”, except inadvertently. The United States has “solved” its housing affordability problem: as a result of the fall in house prices which helped precipitate the global financial crisis, housing there is now more “affordable” than at any time since the 1960s - if you can get a mortgage. But the broader economic consequences of “solving” the American housing affordability problem in this way have been horrendous, and not just for the United States.

No Australian government - or political party aspiring to government - would ever implement or advocate measures intended to bring on an across-the-board fall in house prices. On the contrary (as we have seen as part of Australia’s response to the global financial crisis), Australian governments will go to considerable lengths to prevent even a modest decline in house prices prompted by factors entirely beyond a government’s control.

But if governments could summon up the courage required to abandon a strategy that has been so conspicuously unsuccessful, and redirected the money which currently serves only to inflate the demand for housing and thereby push up housing prices, instead to increasing the supply of housing, they might actually succeed in making housing more affordable and increasing the home ownership rate.