Folly of Housing Stimulus without New Houses

By Dr Stephen Kirchner

The increase in the First Home Owners Grant is a key element of the federal government?s fiscal stimulus. But the June quarter national accounts show little benefit in terms of new housing supply. Dwelling investment fell 5.5% over the quarter, the third consecutive quarterly decline, to be down 11% on the June quarter last year.

Where the grant did show was in a 10.6% increase in "ownership transfer costs", which measures expenditures made in transferring the ownership of existing homes, but adding only one-tenth of a percentage point to GDP growth. The grant was a boon to the vendors of existing homes, with national dwelling prices up 4.5% in the first six months of 2009, based on RP-Rismark data. Sydney prices were up 5.9%, while Melbourne prices were up 6.5%. But where is the new supply needed to make housing more affordable?

Building approvals for private houses have increased by 4.7% since July last year, but this is offset by a 26.2% decline in approvals for private multi-unit dwellings, leaving overall dwelling approvals down 3.9% on July last year. Moreover, much of the recent increase in housing finance and private house approvals represents a bring-forward of activity to take advantage of the grant that will see a future pay-back in the form of weaker activity as the grant is phased out.

In the December quarter last year, Australia saw only 79 dwelling commencements for every 1,000 persons the ABS estimates were added to the resident population. This is the lowest ratio of commencements to the estimated change in resident population for any quarter going back to 1984, the period for which we have comparable data.

With annual population growth running at just under 2% at the end of last year, Australia does not need to further stimulate housing demand. It needs to start addressing what RBA Governor Glenn Stevens has called the "serious supply-side impediments" to making housing more affordable.

The above is part of a press release dated Sept. 4 from the Centre for Independent Studies. Enquiries to Snail mail: PO Box 92, St Leonards, NSW, Australia 1590. Telephone ph: +61 2 9438 4377 or fax: +61 2 9439 7310

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