The budget’s affordability measures won’t lower Australia’s house prices. They weren’t designed to
Do you want house prices to be higher or lower? I think they should go down, but relax, few people agree with me. Especially people who already own a home or four, and especially politicians. Try telling two-thirds of voters that you want the price of their biggest asset to fall.
To avoid this awkward reality, we don’t talk about house prices as a policy problem, we use the weasel words of “housing affordability”. While virtually everyone agrees housing should be more affordable, virtually no one can tell you what that means.
Which brings me to Tuesday’s federal budget.
The government knows it must do something about housing affordability, but it obviously doesn’t want house prices to fall. So, once again, it grabbed for some announceables that sound like they should work – but government knows they won’t really do anything. Cynical huh?
Housing announceables are always framed as a way to give a preferred group of home buyers a “leg up” when in reality, all they really do is give existing homeowners a windfall. But before I explain how Tuesday’s announceables work, we need to talk about how selling a house works.
People selling a house want to get the highest price they can. Whether they sell at auction or private treaty they want to find the person who is willing and able to pay the most money. Competition between bidders is good for the sellers.
Now imagine there are 10 people at an auction and we offer one of them an extra $20,000 to put towards their deposit. If they are keen on winning the auction they will likely say: “Sure that’s great, with more cash I can bid higher and borrow even more from the bank.
Win, win.”
Now if we only offered the bonus $20,000 to one of the bidders, we would have definitely given them, and the seller, a “leg up”. But if we make the same offer to everyone, then the only people we have helped are the previous owner of the home (who gets a windfall) and the banks (who make bigger profits off bigger loans).
So, back to the budget. On Tues