Australian governments have spent $20 billion to help first-time home buyers, but who really benefits?

Last week, the Australian Housing and Town Planning Research Institute released a report detailing how much money has been spent helping first-time buyers over the past ten years.

Worth reading as it actually shows how Australian policy makers have skewed our housing market in favor of homeowners since the 1980s and 1990s.

Our modern “support” for first-time buyers cost billions of dollars, but it changed Australian society.

And that has exacerbated housing affordability issues.

What happened to the Australian dream?

The Australian dream of home ownership was not a natural occurrence.

It was created deliberately after World War II, with large-scale state support and significant supply-side programs.

He saw homeownership skyrocket in the 1940s and 1950s to peak at over 70% in the mid-1960s.

The “Australian dream” of home ownership was deliberately created.(Source: Dr Cameron Murray, Submission to the House of Representatives Standing Committee on Taxation and Revenue Inquiry into Housing Affordability and Supply, September 2021)

But a new report from the Australian Housing and Urban Research Institute (AHURI) shows what has happened since.

As the report’s authors explain, supply-side measures put in place by the government to promote home ownership were crucial to the growth of homeownership after the war.

Particularly in the period 1956-1973, this involved both:

  • Government-funded and commissioned large-scale construction of housing for sale at low cost
  • The Commonwealth Government is encouraging state governments to open up existing public rental accommodation for purchase by existing tenants

They say governments have actively encouraged people to become homeowners through tax and social policies. Property tax and rent controls in some jurisdictions have helped to suppress the competition that rental investors would pose (and pose today).

A beast chokes the personification of "Prosperity" in a propaganda poster
During the Cold War, home ownership was seen as a way to stifle revolutionary tendencies.(Wikimedia)

And as historians remind us, Australian governments also encouraged home ownership during the Cold War as a way to keep communism at bay.

“Citizens committed to mortgages are generally not revolutionaries,” ran a wartime advertisement.

Either way, the AHURI researchers argue that the combination of these policies in the post-war period was favorable to home ownership.

These supply-side measures have been complemented by large-scale demand-side assistance, particularly in the form of state-backed concessional mortgages, as well as a regulatory preference for mortgage loans. buying a first home, they say.

This made the housing market much more affordable than it is today.

As a previous AHURI report noted in 2020, it did not take a large amount of savings or a large household income to buy a home – typically two to three times average household incomes, compared to five to ten times today (or more). ), depending on the city.

High rates of general inflation during the 1970s and 1980s also helped to quickly ease the financial burden of a first-time homebuyer.

Neoliberalism is changing the country

But like much of modern Australia, things started to change in the 1970s.

As the new AHURI report explains, rent control has increasingly been abandoned, along with the supply-side measures that were crucial in helping so many people buy a home.

From the 1980s, Australia’s policy of promoting home ownership shifted to one favoring homeowners, not first-time buyers (FHB).

“Over the past 30 years, in keeping with the dominant neoliberal mode of governance, the focus has shifted almost entirely to on-demand aid,” the report says.

“The main focus now is on strengthening the purchasing power of FHBs through cash grants and tax breaks, and providing access to low deposit rate loans. [But] because they allow a marginal FHB to outbid others and set a new higher price in the market, they basically raise real estate prices.”

The researchers say that, compared to similar countries, Australia’s modern approach to housing is extremely one-sided.

“Over the past few decades, Australian authorities have largely chosen to avoid mechanisms that directly subsidize or otherwise enable the provision of suitable (or dedicated) housing for FHBs,” they say.

“Similarly…Australia no longer routinely uses financial regulatory powers to prevent owners and established investors from over-exploiting and outbidding FHBs.”

With the financial deregulation of the 1980s and 1990s, liberalized mortgage lending saw massive sums spent on housing, helping to drive up prices, and it allowed existing homeowners to use more equity to invest in their own homes or in rental properties.

“It is ‘as if the increased appetite grew by what it fed on’, as Hamlet says of his parents’ affection for each other (Hamlet, Act 1, scene 6); a millennial Hamlet could say the same about his baby – the propensity of baby boomer parents to buy homes,” the researchers explain.

Billions spent on aids that benefit existing homeowners

The overwhelming preference for demand-driven assistance has been costly.

Researchers say that in the decade to 2021, more than $20 billion has been spent by Australian governments on housing demand relief, encouraging a costly feedback loop.

“When Australian governments in the 21st century help first-time home buyers, they do so with demand-driven programs that fuel further house price increases – and in turn spur calls for more help,” say- they.

“The present research estimates that over $20 billion has been spent in this way by Australian governments over the past decade, enabling households already on the verge of home ownership – including, in a growing number case, under gifts and loans from parental wealth – to set a new higher price in the market.

First homeowner grants since 1965

“Where some view homeownership assistance as middle-class welfare relative to the socio-economic position of the direct beneficiaries, it does not help as much as existing homeowners, both sellers and owners of real estate assets.

The researchers also show that while there has only been a gradual decline in the homeownership rate in Australia since the early 2000s, this figure hides a steep decline in homeownership among young Australians.

Falling home ownership rates among young Australians

If these demographic trends continue, Australia’s historically high homeownership rate is sure to drop significantly.

“It is the sharply declining homeownership rates recorded among young and middle-aged adults over the past 30 years that have played a key role in driving concerns about homeownership affordability and spurring efforts to help aspiring FHB achieve their ambitions,” the researchers say.

So what to do?

This is an interesting time for the release of the report.

According to the latest census data, which was collected in August last year, 1 million homes were unoccupied on census night.

This represented 10% of the national housing stock.

ANU demographer Liz Allen told the ABC that this phenomenon is something policymakers need to keep in mind.

“The fact that people aren’t living in these homes is a huge oversight from a policy perspective, especially when housing affordability and homelessness is such an issue in Australia,” she said. declared.

The AHURI researchers say there is room for a much more active supply-side contribution to affordable homeownership policies in Australia.

They cite other examples of FHB assistance in countries such as Finland and Singapore, where financial assistance is part of broader housing strategies.

They also say Australian state treasury departments should consider other ways to collect tax revenue, as they have become too reliant on the current system.

“These goals are constrained by the business imperatives of Treasury executives, who have seen dividend goals trump broader social and economic policy goals,” they say.

The report also highlights an idea from housing expert Cameron Murray.

Head shot of economist Cameron Murray smiling at the camera
Economist Cameron Murray says Australia needs an alternative model for first-time home buyers.(Provided: Cameron Murray)

Dr Murray has proposed mimicking an idea from Singapore, for a public homeownership system, which has boosted homeownership in that country from 20% in the 1960s to almost 90% today.

He says we need a 21st century housing provider who will build non-market housing and sell the homes at cost to eligible Australians, with a discounted mortgage, buyers can pay the down payment and repayments in using their mandatory super contributions.

He says such an alternative housing model could work alongside private buy-and-let markets, and owners of alternative housing should have the right to sell to other eligible participants after a mandatory period of occupancy. .

“In a world of unequal wealth and income, the housing supply on the market generally fails to provide quality housing options for young and low-income households,” says Dr Murray.

The AHURI researchers say Dr. Murray’s proposal is worth considering (along with other ideas), but it could face significant hurdles in implementing it.

“While we consider that such a model certainly merits further investigation, it is also recognized that its acceptance (in particular consideration of mandatory site acquisition for housing construction) would call for a paradigm shift in the established Australian thinking on the appropriate role of government,” they say. .

Everything is food for thought.

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