Prime Minister’s housing blunder
IT WAS initially welcomed by the property industry but holes are starting to emerge in Prime Minister Scott Morrison's pre-election pledge to provide a new incentive for first home buyers.
The prime minister's proposed assistance included a scheme to help buyers get into the market with a deposit of just 5 per cent, with the government promising to ensure buyers wouldn't need to pay lenders' mortgage insurance.
And while the policy would help some buyers get into the market, it could also have unintended consequences for housing prices and will be confusing for banks, according to the Real Estate Institute of NSW.
The industry body's chief executive Tim McKibbin said the government offer was admirable but the prime minister would have been better off taking a more hands off approach to the housing market.
"Assisting first home buyers is unquestionably a good use of government resources," he said. "However, when the government uses its power to influence a free market, it invariably has adverse consequences."
He added that a government offer to remove GST on new properties would have been more effective in helping first home buyers because the tax has been instrumental in driving up purchasing costs for buyers.
The government has also offered no solution to improving housing supply, which has been another significant driver of high prices, Mr McKibbin said.
"There are numerous impediments to bringing new dwellings to market and it is in this area that government intervention is required," Mr McKibbin said.
Government made another risky assumption in believing banks would finance prospective purchasers if they have been unable to save the required deposit, he said.
"Banks are entitled to feel confused, considering it is less than six months since they were heavily criticised for their lending practices," Mr McKibbin said.
"If the banks are not confident that prospective purchasers can service their debt, then acting responsibly, they will refuse to extend them a loan."
Those who did get financing would likely have to pay a higher rate, he added.
"It seems likely that the bank would view the risk profile of a government assisted applicant for a loan as a greater risk … that risk would be reflected in additional security measures, including a higher rate of interest."
The Coalition would need to consult more with the industry if the scheme was to succeed, according to the REINSW.
"It is concerning that the banks, who are integral to the success of the government's policy outcomes, were not consulted," Mr McKibbin said.
Hotspotting founder Terry Ryder recently wrote in a Property Observer column that if the government really wanted to improve housing affordability it would need to cut property taxes.
"All three levels of government milk real estate for revenue. They treat the housing industry as their favourite cash cow," Mr Ryder said.
"Every time a state or territory government brings down a budget, it adds to the affordability problem by increasing existing imposts or imposing new ones."