February 1, 2018 by Dymphna

Lots Of Government Money Going Into Property

Where is government money going now?

The First Home Owners’ Grants (FHOGs) weren’t particularly popular.

Well, they were if you got one. They were great. But as far as economists went, they weren’t seen to be all that fabulous.

Effectively the government just poured a whole lot of cash into the housing market, via the tap of first home buyers. As a result of this extra money, prices went up. Hopefully not as much as recipient purchasing power, but there’s no definitive evidence here.

It is possible that the scheme was a giant waste of money.

(I know right? Who would have thought?)

Anyway, without the academic cover they needed, FHOGs fell out of political favour.

But good policies never die. They just go into review.

And now FHOGs are back, with a brand new skin, like a zombie in a fresh shirt.

Now they’re called “Shared-Equity schemes”. Victoria is about to launch theirs in the next few weeks. From Domain:

Hopeful first-home buyers across Victoria will soon be able to apply for the state government to cover up to a quarter of their mortgage.

The shared equity scheme, known as HomesVic, will be available to low-income earners looking to buy in select growth areas and regional centres.

The state government announced it would co-purchase up to 400 properties, taking an equity share of up to 25 per cent of each home. When the properties are sold, the government would then recover its share of the equity.

The $50-million initiative aims to make it easier for first-home buyers to enter the market by reducing the size of their loan, hence reducing the amount they need to save for a deposit.

The initiative targets single first-home buyers earning an annual income of less than $75,000 and couples earning less than $95,000.

Eligible applicants must buy in so-called “priority areas” which include 85 Melbourne suburbs, seven fringe towns and 130 regional towns and suburbs.

Regional centres on the list include Ballarat, Bendigo, Castlemaine, Geelong, La Trobe, Mildura, Seymour, Shepparton, Wangaratta, Warrnambool and Wodonga.

There’s a bit of genius here. The optics look good – who doesn’t want to be seen to be supporting young buyers and up and coming areas. Win.

It’s also effectively revenue positive in the long run. If house prices keep rising, then a 25% share should increase in value over time.

It will probably offer a better return than the government could get with their money anyway. Effectively, the Victorian Treasury just took a position on residential property. I think that’s probably a first.

But the key point is, it doesn’t cost the government money in the long run. It’s free. You write the debts off against the liabilities, and you get to throw $50m at the electorate without touching your budget bottom line.

That’s some political genius right there.

And it’s different enough sounding from “grant” that people don’t automatically realise that you’re just throwing money at the market again.

So expect some action at the entry level of the market, in Victoria now and then around the country as other states follow suit.

Make no mistake. This is FHOG 2.0. The original version was blunt and prone to rorting. This is definitely better.

But the mindset behind it is the same. Young people can’t afford to buy. They must need money. Let’s find a clever way to give it to them.

What are you going to do? This is as much as you can expect. And as the Victorian government reaps political capital from this scheme in the near term, you can bet that other states across the country will follow their lead.

Money is on the move people. Watch where it’s going.