Swan wimps out to property lobby

Karl FitzgeraldCommentary8 Comments


With all the promise of a tough budget, the biggest concern is the limp wristed, white flag response to the First Home Owners Grant (FHOG). Rudd’s recent mention that’ the FHOG won’t go on forever’ must have seen some furious lobbying in the halls of power by the Ron Silverberg’s (HIA) of the property lobby.

Last night we learned that it will go on. The FHOG will be extended in full for another 3 months and then halved and continued – for another 3 months. Why doesn’t the government just give the property lobby the money directly? The $539million allocated over three years will have a tragic multiplier effect on land and housing prices.

The Age’s Chris Vedelago showed that average prices in poorer suburbs increased by more than the grant, with the average uplift in these Victorian suburbs being $27,000.

Since the FHOG increase in October 08, and by averaging the monthly First Home Grants over the last 4 months we have stats for, we can assume that 146,201 renters will have been manipulated into buying property by the start of the spring real estate season. Then the traditional spring seasonal demand will replace any downturn from the halving of the FHOG at the end of September.

The average FHO loan over the last year was $255,000. By adding the $27,000 bump up that the FHOG will add to the average loan, these aussie battlers will pay $195 extra per month.

Over the next year this means that first home owners will pay $28,509,195 in additional payments to the land banking developer and the lip-licking bank executive.

Over the 25 year lifecycle of the loan, this will add $31,548 in total payments to their mortgage. Taken to it’s logical conclusion, 146,201 first home owners (make that 200,000 according to the latest figures) will pay a combined 4.6 billion dollars more to the property and banking industries than they should have.

That’s how $539 million turns into a $4.6billion handout for the lucky few.

We are being conservative in these figures as they do not include the $6000 increase in FHOG from the Brumby State government. New house owners will now receive $32,000 in handouts ($21k federal and $11K state), and as Saul Eslake warned the ALP before they took office, this will naturally cascade into higher land and housing prices. Economics dictates this, no matter how smooth Swan looks.

The infrastructure boon will also prop up land prices in prime locations. Lucky speculators in Werribee South will be very happy when they can advertise a reduced travel time to the CBD.

Year on year from February 2008 there has been a 19% increase in the size of FHO loans. This is a $52,700 spike.

Tragic economics Mr Swan. Casino economics for the lucky speculative retiree.

These extra payments will undermine the so-called pump priming benefits of the $57.6bn deficit. Why? Because these households and indeed any other recent home purchaser will not have the comfort money to engage in the consumer lifestyle so necessary to bounce this economy back into 4.5% growth territory.

As a spin-off, such FHOG distortions will also help consolidate small business in wealthy areas. Wealthy communities will be the only ones willing to support boutique, creative enterprise. Choice will expand at the top but yet gets dumbed down for the traditional Labor supporter.

In years to come someone will release a study proving the effectiveness of handing lobbyists the money directly rather than using economic trickery to boost their bottom line. If young people knew about the sucker punch they are falling for, they would offer to roll out the red carpet for the property lobby. Why not? It would be more economical for us to give them the money directly AND to fly to Canberra to put on a giant party for the property lobby, with Gen X, Y and Z waiting on them hand and foot for a whole weekend rather than spending their lives hocked up to their eyeballs in debt.

The 6 month reprieve for the housing market has now been extended. The Rudd government is aiming to lock us into 40% plus payments on our mortgages, more than any other generation.

And to top it off, clean coal was given the majority of funding in the clean energy component of the budget.

8 Comments on “Swan wimps out to property lobby”

  1. Great article, but I dont think this will stop the house price correction we have to have. It just sucks more people into the bubble to be fleeced. If you look at the other segments of the market excluding FHOs, I think the only shortage soon will be a shortage of buyers, just like what happened in the UK. They to had a shortage and thought they would be immune to the global house price flu. How wrong they were and how wrong we are to think that it couldnt possibly be wages that drive sustainable house prices and we dont have a house price bubble.

  2. If you go to yout utbe and search for UK housing price crashes there are some videos from about 2 yeards ago were “experts” said there was a supply problem and house prices would NOT fall.

    Now I have actually lived in London adn anyone who has woud actually think this could actually be true – but this didn’t stop the decline.

    Fact of the matter is Australia has had the BIGGEST housing bubble of the whole world. We did this becasue we went into the MOST amount of DEBT. This is indicated in the fact that Australia has the biggest household debt compared to the rest of the worls. SO we borried the most and oushed up our prices the most.

    Prices have invrease 200-300% – Why don;t people thingk a 20-30% correction is not going to happen – ofcourse it will – prices have still gone up 200-300% – minus 30%

    House prices always go up – but dont take that too literally. If prices fell 50% tomorrow house prices would have still gone up. Why? Because house prices are measured over time. That is houseprices went up from 1999-2009 – they did significatly – even they dropped 50% yesterday

    Wake up from your bubble silly people – We are having the Great Depession part 2 (21st style) becasue all theis debt – and you think house prices are not going to get corrected – wake up

    I have never seen a “market” that only goes up

  3. HI Chris,

    your youtube pointer is a good one because this highlights Fred Harrison, who first wrote about the 2010 collapse back in 97. With the sell out/ vision-less policies being exhibited by western governments globally, we will see another massive downturn in 2026. This fits the 18 year land cycle that Fred has promoted since the early 80’s.

    We are being locked into 40% plus payments on our mortgages. See any similarity to slavery? Listen to Michael Hudson, a guy we are touring in October in this explosive interview on the Financial Barbarians at the Gate

  4. The graph attached to the article understates the true seriousness of the housing bubble … note the year is 2006 where RP Data (real estate funded) has set the “100” or normal mark — a time when houses were already critically overpriced. Check out whocrashedtheeconomy.com where they have graphs dating back to 1890 and show the housing index up around 3-400!!!

    There are going to be a lot of sorry people out there!!

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