Home buyer handouts prove politicians haven’t the first clue about real estate: Terry Ryder

If anyone wants evidence that politicians haven’t the first clue about real estate, here are three items that present an open-and-shut case. 

Exhibit A: The state governments of South Australia and New South Wales, in their budgets for next financial year, are offering stamp duty concessions to people who buy new product. 

Exhibit B: The state government in NSW has been offering $7,000 to anyone who will move to the country. 

Exhibit C: The governments of the Northern Territory and Queensland have extended their schemes that offer $10,000 grants to builders of new dwellings. 

The NSW incentive for people to relocate from a city to a country area has been running for some time and has gained little traction. Fewer than 700 households have applied for the grant in the past year, despite NSW Treasury forecasts of 10 times as many. 

In similar vein, a Queensland scheme to boost new home building with a $10,000 grant has been unsuccessful. And in equally similar vein, a Northern Territory scheme to induce people to buy/build new houses or apartments in Darwin (the $10,000 BuildBonus grant) has been conspicuous by its non-success. 

Both governments have responded to these failures by extending the schemes, presumably to give them longer to not work. 

Why haven’t these measures worked? Because the government inducements amount to only a fraction of cost of doing what the governments want buyers to do. 

For this reason, the new stamp duty concessions and/or grants in SA and NSW will miss the mark as well. 

The problem is that while more Australians are buying homes and investment properties this year, they’re buying established properties rather than new ones. Eight out of 10 first-home buyers buy an established dwelling. 

The building industry has convinced itself that it’s all the fault of politicians and for years has been harassing all levels of government to do something. 

The grants and stamp duty concessions are an attempt by politicians to shut them up. They’re trying to induce consumers to build new homes rather than buy existing ones. 

Here’s why it doesn’t work. Buying a new house costs, on average, $70,000 more than buying an equivalent second-hand one. In some locations, notably our larger cities, the cost difference is well over $100,000. One research exercise last year found the cost differential in the Brisbane City Council area was $120,000. 

The stamp duty savings on offer from state governments are petty cash compared with that cost discrepancy. Anyone who does her sums won’t be excited by the prospect of a $15,000 handout (the new NSW grant for first-timers who build a new dwelling) to cover a $100,000+ cost – unless she particularly wanted a shiny new home that no one else had lived in. 

It was reported this week that, much to everyone’s surprise, few people have taken up the NSW government’s offer of a $7,000 gift for anyone who relocates from a city to a regional area. 

Clearly, no one in the state government has sat down and worked out how much it costs to relocate, which means selling the existing home and buying a new one elsewhere. Nor has Federal Minister for Regional Australia Simon Crean, who says he’s surprised the scheme hasn’t excited greater interest. 

Selling costs include stamp duty, legal fees and agents’ commission. Buying costs include stamp duty, legal fees, building and pest inspections, valuations, bank fees and charges. And then there are the logistics and expense of packing up and moving. 

A family that sells up in Sydney and moves to the bush could easily be up for $50,000 – against which the government’s handout is a pittance. 

If they were still making episodes of Yes Minister I’d put this forward as a script idea. Sir Humphrey Appleby would love the concept of urging people to spend $50,000 to earn $7,000. 

If politicians seriously want to stimulate the building industry, there’s plenty they can do. But it’s not about handouts to consumers – it’s about reducing the costs of creating new homes, a huge proportion of which is the burden of taxes, fees and charges by all three levels of governments.

 Terry Ryder is the founder of hotspotting.com.au and can be followed on Twitter.