Home truths

Labor's poorly framed housing scheme is a disaster in the making. By Harry Colquhoun.

The biggest policy disasters frequently start with the very best of intentions. The unintended consequences of ill-thought policy decisions can frequently make a bad situation worse.

Anthony Albanese’s poorly framed “Help to Buy” scheme is a disaster in the making.

Labor proposes that the Commonwealth intervene in the housing market by taking an equity stake of either 40 per cent in the case of a new home, or 30 per cent for an existing home.

Ten thousand potential homeowners will be assisted on the condition that they earn less than $90,000 as an individual, or $120,000 as a couple. Unusually, this is not just restricted to first home buyers entering the market but instead to anyone who currently doesn’t own their own home with no asset review.

The income test could see applicants being forced to buy back the government stake if their income rises above $90,000. As the Prime Minister put it in last Sunday’s leader’s debate, this is not so much “help to buy” as “forced to sell.”

Further, it doesn’t address at all how children would inherit a parent’s home if they cannot afford to buy out the government’s stake but their income is above the eligibility level.

This proposal endeavours to make housing more affordable. Yet by injecting extra capital into a market in which demand exceeds supply, the effect will inevitably be to force up housing prices.  This is often the issue with demand-side initiatives that don’t address the supply problem in a market and the associated costs of land and construction.

The Help to Buy plan doesn’t have a trial period which might allow the flaws to be corrected or the scheme abandoned altogether if it proves a failure. The assumption is that government knows best and that everything will go to plan.

Labor initially advertised the program as costing $329 million, assuming only management costs, ignoring the price of acquisition and interest. The plan would cost at least $3.8 billion dollars in acquisition costs alone across the initial 10,000 slots.

Labor argues the scheme “would have a small short-term budgetary cost as the government pays interest on extra government debt”. However, this “small, short-term budgetary cost” would have the government pay interest on borrowings, with the Parliamentary Budget Office putting the plan at $7 billion over the forward estimates, assuming no interest rates rises.

No account appears to have been taken of the risk to the taxpayer. How do we know that in the event of default, the lender will not exercise its right to seize the property, leaving the government with an unanticipated liability?

There is a frightening lack of information about how the scheme will be managed. The plan doesn’t specify who pays for or benefits from any renovations or maintenance done to the home. Will the Government contribute 40 per cent of the rates, insurance and other similar costs? Who covers what portion of the cost of home damage in an uninsured incident like a flood or storm?

Scott Morrison has been rightly pursuing Labor for more detail, arguing that people don’t want to co-own a house with Anthony Albanese and that they don’t want a Labor government acting as a landlord, forcing the sale of people’s homes. An outcome Deputy Labor leader Richard Marles conceded was a possibility if people’s income rises above the income cap, or if the property is passed on to their children.

Another problematic scenario is the Government profiteering off the housing market. Labor could decide when to sell a home depending on market conditions so as to maximise their return. For example, if the scheme had been in effect 10 years ago in 2011 and a home was bought at the average price of $535,300 and in 2021 that household’s income went above the $120,000 cap the government could force a sale and see a windfall profit off that home. As the home would sell at an average price in 2021 for $1,207,200 the Government would have taken a tax of $268,000 off the increased value giving them a strong incentive to force sales.

The real issue here, however, is that speculating on the property market is not the role of the government, let alone at a time when the market is already overheated.

Housing has always been a popular election arena.

Robert Menzies tackled the issue with prudential controls, concessional loans, and direct financing by the Commonwealth and in turn saw a 70% home ownership rate and unparalleled electoral success. Scott Morrison’s government has focused on increasing supply and has seen 137,800 new home projects backed by HomeBuilder and has supported more than 300,000 Australians in purchasing their home.

Labor should be focusing on real economic management and address the very concerning issues we already face regarding supply of affordable land and houses.

Owning your own home is supposed to be the Australian dream. Sharing ownership with a government headed by Anthony Albanese will be a nightmare.

Harry Colquhoun is a researcher at the Menzies Research Centre.