With misguided schemes for potential first home buyers proving ineffective, Stephen Koukoulas has some suggestions to improve housing affordability.
NOT EVERYONE has had the pleasure of drinking the magnificent champagne, Dom Pérignon. It is so expensive now, which means many people, especially younger folk, cannot enjoy the thrill of sipping on the sparkling liquid gold.
For context: If you get a box of six from Dan Murphy’s, it works out at $394.20 a bottle — that is $2,365.20 for the six-pack. An individual bottle is $414.95.
For those who may not know, Dom Pérignon is one of the great champagnes.
According to its website, it is:
‘...guided by timeless principles that have always taken precedence over winemaking techniques and their evolution. Dom Pérignon can only be made from a blend of grape varieties and terroirs: our goal has always been to create an enhanced whole with ever-more tension, rhythm, completeness and complexity.’
Dom affordability has reached an extreme over the past few decades that has seen many potential champagne drinkers being priced out of the market.
They may have to settle for the sparkling Yellow Tail, which is under $10 a bottle.
According to rarewineinvest.com, the price of Dom Pérignon has increased 550 per cent over the last 20 years, a staggering increase given the change in wage growth.
Back in the day, a bottle of Dom was “sort of” affordable. Sure, it was a little expensive, but to celebrate a great occasion, it was not impossible 20 or 30 years ago to get out the Bankcard and crack a bottle of Dom in splendid celebration.
It is a pity that so many people, especially the younger age cohorts, will not enjoy the delights of Dom Pérignon.
As a result, we could have a first Dom Pérignon buyers grant – FDPBG – or allow people to access their superannuation funds to buy their first bottle of Dom.
If this happened, demand for Dom would boom. There’s a good chance retailers would lift their prices as a result, undoing much of the good intentions of the FDPBG.
Now try housing affordability
Of course, the discussion about champagne is deliberately flippant and even offensive given the juxtaposition about to be made with housing affordability. Housing is an essential item while champagne is the ultimate luxury.
However, the issues of subsidies and efforts to improve affordability are much the same.
Many of them are well-meaning but hopelessly misguided.
Issues relating to housing affordability have seen several government schemes emerge, few of which actually provide any assistance to potential first home buyers confronting an affordability challenge.
First home buyers grants give potential house purchases an extra $15,000 or $20,000 buying power, a sum that is inevitably tacked on to their deposit and the value of the loan. At auction, it is the house seller who pockets the extra money that is gifted to the eager first home buyer.
It would be a similar story if first home buyers could access their superannuation for housing. If a couple could tap $50,000 from savings, they would use the bulk if not all of that buying capacity to increase their offer for a given house.
The point is made
This article is a bit of a piss-take, to be sure. No one is advocating government assistance to buy Dom Pérignon. But there are already in place misguided schemes giving taxpayer money to potential first home buyers which simply don’t work and the Liberal Party is advocating access to superannuation to boost the purchasing power of buyers. This is crazy.
To improve affordability, policies that reduce demand as well as those that add to supply are the only ones that work.
Subsidies and grants add to demand and have no impact on supply.
In addition to making housing less affordable, they are costly to the state and federal budgets which is an issue when much needs to be done to repair budget settings.
What needs to be done
Much has been written about what needs to be done to improve housing affordability and here are the two key changes that can be implemented: ease zoning rules to facilitate plentiful new construction in areas where people want to live; and set the immigration intake at a level consistent with the growth in the dwelling supply.
Other policies relating to tax, workforce skills and the expansion of public housing for vulnerable Australians are important, but not central to the affordability issue. Reform in these areas is important for reasons other than affordability.
Housing remains a hot-button issue that has seen a lot of ideas floating about how to address affordability.
First home buyer grants and subsidies are not one of those solutions and they should end forthwith.
When they do, I’ll crack a bottle of Yellow Tail.
Stephen Koukoulas is an IA columnist and one of Australia’s leading economic visionaries, past chief economist of Citibank and Senior economic advisor to the Prime Minister. You can follow him on Twitter/X @TheKouk.
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