I'm doubtful that the original first home owners grant increased the 'value' of homes by approximately the amount of the grant in rural areas.

Lyn,
Its a lot to do with keeping people working too. We are going to see lots of people layed off in the retail,manufacturing and hospitality areas.

Did you see that Northbank has been scrapped?

Vee,
I'm under the impression that people are still leaving rural areas to migrate to cities. If that is right, it would be interesting to know how many of those grants went to people doing that, and in a roundabout way eroding values in rural areas.

"Did you see that Northbank has been scrapped?" Yes, and no bad thing in my opinion. Curiously, industry gossip had it that it was a done deal and a builder had already been chosen. At that rate, scrapping it has come rather late in the day.

It was hugely unpopular, which is the reason given for canning it. That suggests it was a political decision, but Labor aren't about to lose in the city centre, which makes me wonder whether it wasn't an economic decision despite the ridiculous claims that it wouldn't cost taxpayers anything.

Rather gloomy.

Les+Lyn
What the hell is Northbank? Some Gold Coast development?

I'm very tempted to buy a crappy relocatable home in a park somewhere, collect my first home buyer's grant, live in it for 6 months then sell it again. I can use the tax-free $14,000 to soothe my battered superannuation. Quite how it would help the economy escapes me but I'm sure Kevin knows best.

Lyn,
If you know where Southbank is Northbank was to be on the other side.

It has been common practice in the building industry for many years with the smaller builders when they get someone who hasn't got a deposit to give that person a letter to take to the bank to say that the person has given them a $20,000. As long as the person is judged to be able to make the payments the banks don't question the validity of the letter.

Les
are you referring to Brisbane re Northbank?

Gary,
You'd be familiar with Southbank in Brisbane. Northbank was supposed to be a similar development on the northern side of the river. The plan was for enormous towers but I think the thing most people objected to was a kind of boardwalk arrangement that extended out and over the river itself. Lots and lots of lovely Multiplex concrete.

Northbank was meant to be Brisbane's Darling Harbor. It was based on extending concrete platforms into the Brisbane River. There was strong public rejection of the Multiplex development.

For once, I disagree with Gary's opening line: Prices increased the Howard/Costello housing bonus by more than the bonus. Value didn't.

From The Economist 2005-06-15 The The global housing boom:

Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?

According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.

The money will probably go to another bridge or tunnel. The Gateway is inadequate now.

Dave,
that post was by Lyn not me.

I concur with you that the rise in price caused the market cost of houses to rise for consumers. It was a housing bubble fuelled by easy money and a desire for better and bigger houses.That bubble began to deflate after house prices peaked in Sydney and began to turn down in western Sydney before the US subprime crisis happened.

When prices began to fall then the over-leveraged credit (mortgage and credit card) became problematic.

Lyn,
Shaun Carney in The Age says:

But the first home owner's grant is a poor piece of policy. It was awful when the Howard government introduced it and it's just as bad now. It distorts prices and quickly benefits vendors and builders ahead of purchasers. And it has little to do with making home buying more equitable. The millionaire's son gets it just as easily as the son of the contract cleaner from St Albans.

he thinks that it is part of the hand-out mentality to get a piece of the transfer-payment action.

Dave,
That's why I said "value" in inverted commas. Houses are clearly over valued.

We had the FHB scheme on top of risky lending practices, and I notice some lending institutions are still offering no-deposit loans, which is effectively what Devine are talking about. No evidence of saving or budgeting capacity required, just get the handouts and Bob's your close relative. This, at a time when we're expecting unemployment to increase.

Nan,
Carney's point about equity stuffs the argument that it's all the lefties' fault for giving poor people houses.

I'm doing some research about the housing bubble. Do we all agree then:

--- house prices were driven by a speculative bubble rather than the fundamentals of the housing market.
--- the loss of faith in the stock market will cause people to turn to investments in housing as a safe alternative to the stock market.
-----as prices decline, more homeowners face foreclosure. This increase is in part voluntary and in part involuntary.
---As default rates began to soar banks will begin to tighten their standards and require larger down payments. The most severe tightening will take place in the markets with the most rapidly falling prices (Sydney).
---the lost household wealth will create serious financial stress.

That is as far as I've got.

Lyn,
if the core strategy of the stimula package is to inject growth into the economy, then as Mike Skeketee points out in The Australia, it is an example of political priorities triumphing over the economic. He says:

Tripling the first-home owner's grant for the purchase of new houses will help stimulate the building industry or at least bring some work forward, even if part of it feeds into higher house prices. But doubling it for those buying existing homes will generate only some increased business for lenders, do nothing for the building industry and will feed into higher house prices while making housing less affordable for future first-home buyers. Particularly given that they are not means-tested, some of the grants will go to those who would have bought homes anyway. But there is no doubt they are popular.

He adds that if the aim was truly to maximise the spending bang for the government buck, then:

at least some of the money could have been better used to expand the new and promising scheme to subsidise the building of low-rent housing. As well, the Government could have taken the opportunity of slack in the building industry to increase public housing, which, after taking account of population growth, has fallen 100,000 homes below the level of 10years ago.

And, as he points out, the unemployed were completely ignored, even though they would have spent the money.

"the loss of faith in the stock market will cause people to turn to investments in housing as a safe alternative to the stock market."

Not if they think they'll lose money when house prices fall, surely?

Anon,
I'm undecided whether it was politically motivated or designed to prop up already artificially high "values". Or both.

In his Surfdom post Ken points out that the building of public housing is a counter-cyclical economic strategy with medium and long term benefits (economic in the medium and social benefits in the long). You'd think the political risk of such a thing would fairly minimal when 'working families' (the deserving poor) are losing their homes.

Steketee's point about existing homes is right I think, especially considering we've been hearing so much about housing shortages. And why, in view of the luxury car tax and private health insurance rebate business, are FHB grants not means tested?

Lyn,
Broome or Hobart are different from Sydney.They have rising house prices.