First home owner grants and the people's bank plan push house prices higher

Wed, 11 Apr 2018  |  

This article first appeared on The Guardian website at this link: 


First home owner grants and the people's bank plan push house prices higher

The Reserve Bank of Australia must be dismayed at the policies from several state governments that have increased cash payments to first home buyers and propose a people’s bank that, among other things, will make it easier for potential owner-occupiers to access credit and bid for a house.

The last thing potential property buyers need is easier access to credit and cash handouts to boost demand. Indeed, the RBA and other regulators are still working the other way, keeping policy tight so that credit growth continues to slow and with that, there will be some rebalancing of household balance sheets away from ever increasing debt.

The first home owners grant increases in NSW and Victoria have underpinned prices, with the number of first home buyers rising around 35% over the past year. In addition to adding to demand for housing, these policies have also been costly to the state budget position.

Without this surge in first home buyer activity, house prices would have no doubt been weaker still and that may have allowed the RBA to be more proactive in setting monetary policy with an eye to boosting demand and lowering unemployment which would impact positively on wages growth and in time see inflation return to the target.

One of the important economic issues that will likely have a significant impact on the economy and policy, is the fall in house prices that is steadily unfolding.

Outside Darwin and Perth, where prices have slumped by over 20% and 10% respectively from their peaks, the falls are not yet substantial, but they could be signalling the early stages of a fall in household wealth which, if sustained, would have consequences for the economy.

In the two mega-cities, Sydney and Melbourne, prices are down 4% and 1%, respectively, from the late 2017 peaks and according to the Corelogic price data, there is no evidence that the falls in prices are abating.

A cooling housing market where prices stabilise or even fall a little, was a key aspect of the RBA decision to leave interest rates relatively high since about 2013 when the rest of the industrialised world was implementing near zero interest rates.

Along with enhancing financial stability, a weakening in house price growth was an unspoken but obvious consequence from the regulators as they imposed a range of rules to scale back bank lending, especially to investors and more risky borrowers.

The cost to the rest of the economy of deflating the house price boom has been sub-trend economic growth, little or no progress in reducing unemployment, ongoing weakness in wages and depressed levels of business investment.

The RBA had made it abundantly clear that it is happy to see the economy pay this price for the sake of a weaker house prices and a marked slowing in credit growth.

Yet some policy advocates are looking at ways to rekindle demand for housing which would completely undermine the years of RBA policy. This is where the boost to first home owners grant and the proposed people’s banks are unhelpful.

As the RBA and other housing analysts have often noted, the best long run way to further improve housing affordability is to increase the supply of dwellings relative to changes in demand.
Translated, this means building more dwellings in areas that are well services by public transport, school, shops, employment opportunities and other basic amenities.

This means either increasing the population density in the big cities, which is reasonably easy to plan for, or undertaking a significant spend on infrastructure so that living away from the centre of the major cities is more desirable. If the government also wants to see an improvement in housing affordability, it could trim the immigration inflow which would work from scaling back underlying demand. It is easy to do – the stroke of a pen could see immigration levels lowered.

Many issues in economics and economic policy can be analysed and the problems addressed with relatively straightforward policy prescriptions.

For housing, it is adding to supply relative to a given level of demand.

Well intentioned policies, such as the first home owners grant and the home buyer friendly people’s bank, work the other way and make housing even more unaffordable. They also suffer from the economists nightmare of complexity and productivity destroying red tape, and even a cursory look at the economic effects make them counterproductive.

They push prices higher as would-be buyers go to housing auctions with access to more money either with the grant or extra credit.

While these misguided policies are in place or threatened to be imposed, it will be harder for housing prices to adjust so that affordability is further improved, especially for would be first home buyers.

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Wed, 29 Jul 2020



Covid19 has opened a door for Australians to positively accept significant changes that will lead to a shared good. This rare opportunity enables us to achieve sustainable economic and social goals that create a new ‘normal’ as our way of life.

These Ten Steps are presented as non-partisan recommendations to the Australian Parliament in the firm belief that, if they embrace them, the Australian economy and society will be greatly enhanced after the Covid19 pandemic has passed.

*A job for you if you want one.
A significant increase in part time and casual employment can be created that will enable you to enjoy a more creative and peaceful lifestyle and to live longer and better. The traditional age at which you would have been expected to retire will become obsolete as a result. An access age for pension and superannuation will become your choice. This will enable you to remain in paid work for as long as you want to, on a basis that you choose, while boosting the productivity and growth of Australia.

*You will get wage increases that will be greater than your cost of living.
A demand for enhanced innovative skills at all levels of employment will be created as the economy grows in strength, thereby enhancing your stature in the workforce and enabling executive salaries and bonuses to drop to levels that are accepted as justifiable by employees, shareholders and customers.

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link:   


The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced.