I’ll admit it. This time a year ago I was excited. I was interviewing the Federal Housing Minister, Tanya Plibersek, who was still finding her feet in her new portfolio.
After years of inflationary housing policy from the Liberal Party, the Rudd Government was taking a different approach to housing unaffordability.
They were introducing First Home Saver Accounts, which encouraged first homebuyers to save rather then spend.
I’m a huge fan of these accounts. So much so that I went out on a limb and encouraged my younger readers to set them up – which is what led me to speak to the housing minister.
During that interview I asked the minister: “Can you confirm that there will be no increase in the First Home Buyers Grant?”
Plibersek responded: “No there won’t be. There won’t be an increase in the First Home Buyers Grant, because we’ve seen from experience what happens when you provide a grant like that – or increase it – is that it goes straight into the pocket of the seller.”
Tripling the grant
Then, a few weeks later the Government tripled the $7000 grant under the existing First Home Buyers Grant if first homebuyers signed a contract on a newly built home before June 30 this year. It also doubled the grant to $14,000 for established homes.
Our discussion this week was what Laurie Oakes would describe as “robust”.
While the original interview was spent spruiking the First Home Saver Account, it has become clear that the rosy
Government projections at the time of 220,000 accounts opened by 2009, and 730,000 by 2011, aren’t likely to be met.
It’s no newsflash that today the majority of first homebuyers are choosing to take the easy money on offer, rather than starting up the savings plan.
Yet, as I argued in the original interview, “having young people establish savings skills before they borrowed the biggest sum of their lives is good training for meeting the monthly mortgage payments”.
Plibersek was adamant that the boosting of the bonus had achieved its aim: “It is our absolute intention for them (first homebuyers) to bring their purchases forward.”
She was clear that boosting the bonus was a stimulus measure in response to the global financial crisis.
OK. We’ve established that the boosting of the grant was one of the Government’s direct responses to combating the worst financial crisis since the Great Depression.
“We found that many first homebuyers had a deposit gap, which stopped them from getting into their homes, and this boost helps them with that,” said the minister.
At this point in the interview, I started raising my voice like a tabloid shock jock. How does encouraging some of the most financially illiterate people in our community to purchase a property with little to no savings at a time of such financial instability “help” them in the long run?
It becomes dangerous policy when you consider the likelihood that some of them will lose their jobs as a result of the measures the stimulus is actually trying to combat.
The minister countered that “in many instances these people are paying lower mortgage repayments than they were paying in rent – although we have always encouraged first homebuyers to do their calculations and make sure they can comfortably afford the purchase”.
(Yes, I’m sure the US Government urged caution to its marginal borrowers – and look how well that turned out! And that Government wasn’t giving them more money than the jackpot at the pokies.)
Sure, our first homebuyers are paying low mortgage repayments now, but it’s a 25-year commitment in some of the worst financial years we’re likely to experience.
One of the outcomes of the G20 summit is a sustained focus on stimulating the world economy.
As we discussed last week, high school economics reminds us that increasing the money supply will (eventually) lead to higher inflation.
While interest rates are low, and probably going lower, the downside risk is that in a few years rising inflation will force rates from historical lows.
The worst-case scenario occurs when some of these young homebuyers lose their jobs as a result of the prolonged economic downturn.
Faced with little savings, increasing repayments, and (perhaps) an extra mouth to feed, I see them with a lot of downside risk.
I also see many young people who have never experienced an economic downturn who don’t fully factor in these risks.
“I simply don’t agree that this will happen,” said the minister.
Because of my consistent stand on encouraging saving rather than spending, and my equally strong opposition to channelling tax dollars into housing grants, I fully understood that our views would differ.
I hope I am wrong.
By the way, the Government has said it is always the intention to end the boost on June 30, 2009, and that it will not be continued indefinitely.
While no decision has been made about introducing alternative measures, you can bet there are many financially interested parties who’ll be sweating over continuing the stimulus in some form.
I’m not a fan of many politicians (regardless of which side they sit), yet I’ve been genuinely impressed with the level of compassion and commitment the housing minister has shown in her dealings with me.
She has a deep understanding that a home is not just an asset, but a special place where families grow and communities develop. We may have opposing views on the correct course of action – but not on the eventual aims.
Tread your own path!