Government grants, such as first homebuyer grants and HomeBuilder, have increased demand for homes and helped drive home prices up, with “pervasive” impacts on housing outcomes for some Australians, the Reserve Bank said.
“Whether it’s time-limited subsidies that drive up demand and prices, or the trade-off between low yields globally and rental yields locally, policies can have far-reaching implications for housing outcomes.”
Speaking at the UDIA National Congress Sydney on Wednesday, Ms Ellis said HomeBuilder and other grants have increased the number of first-time homebuyers for a period of time during the pandemic.
“On the fringe, this reduced the number of people who wanted to rent,” she said.
“At least some of the people who have moved from a shared home to live with their partner would have done so in a newly purchased home.”
She noted that the solid home building rates over the past two years were due to very low interest rates and government subsidies, such as the “raft of subsidies and other incentives for housing construction, as well as support for first-time homebuyers during the pandemic.” .
While it has been difficult to unravel how much of the increase in housing demand was due to temporary subsidies and the current low level of mortgage rates versus the shift in preferences for people to live in their own homes, she noted that government subsidies caused a big wave.
“Clearly, the time-limited nature of HomeBuilder and some other grants has caused a temporary surge in construction approvals for detached homes and renovations,” said Ms. Ellis.
“We estimate that about a quarter of construction approvals during this period were supported by HomeBuilder, although many of these would have happened anyway.”
Ms. Ellis said that, even now, after eligibility for these subsidies has been lifted, these building permit categories have remained higher than they were just before the pandemic.
Over time, however, that additional increase in HomeBuilder building approvals and other grants will have been absorbed and would no longer support the level of housing construction.
“As interest rates rise, the momentum of demand from the current low interest rates will also diminish,” she said, noting that “it is likely that buyer interest in new homes will also decline.”
Labor’s ‘Help to Buy’ scheme could put some first-time homebuyers at risk
CoreLogic’s research director, Tim Lawless, says many home-buying decisions have been advanced to take advantage of the many subsidies and incentives for home-buying in 2020 and 2021.
He noted that the incoming Labor government’s shared equity scheme, which allows an eligible first-time homebuyer to share up to 40 percent of the purchase price with the government, is also likely to be popular with would-be homebuyers.
He said that, with a 10,000 seat limit, the scheme – known as “Help to Buy” – could be quickly oversubscribed.
However, Mr Lawless cautioned that anyone considering the scheme should be aware of the risks involved in buying with such a small down payment.
“It is important to know whether the government will share in the downside risk if the property is sold while it is in a negative equity situation.”
Sally Tindall, Research Director of RateCity, said the Help to Buy scheme would give lower-income people “an instant step into a real estate market that would otherwise have been out of reach.”
However, she also warned first-time homebuyers that “taking out a loan with a small down payment can be incredibly risky, even if the government is buying with you.”
“While it’s a great feeling to be able to drive a nail into the wall without having to ask permission first, when your roof starts to leak or your hot water system explodes, there’s no one to pass the bills to,” she said. .
And she noted that with interest rates rising and real estate prices expected to fall in the coming years, buyers themselves could be “stuck in a home buying plan for much longer than expected.”
Pandemic caused a renovation boom and lowered the premium for living in the city center
Ms. Ellis noted that renovation activities had also increased as people who could not afford larger homes made their own homes more livable.
“Desire for more space is one thing. The ability to get it is another. For some, this choice became more feasible because of other pandemic-related shifts,” she said.
“If you don’t have to commute to job centers as often, living further away will be more sustainable.
“Then it becomes more feasible to get more space for a comparable price by swapping places.”
She said that while the premium for proximity to the city center remained, it is now “much smaller and closer to the suburban premium in the middle ring”.
Ms. Ellis also notes that many people were unable to work from home due to the nature of their work.
“Rather, they were concentrated in inner-city, more expensive areas.”
Data from the 2020 HILDA survey suggests that about 60 percent of people who lived within 5 kilometers of a city center could work from home, but less than 40 percent of those who lived more than 20 km away.
Ms Ellis said the other big factor fueling housing demand was that pandemic lockdowns had created a greater sense of home among Australians, with more people choosing to live in their own space.
“Spurred on by the experience of lockdown and self-isolation, many people understandably wanted a little more space and maybe a garden,” she said.
As a result, the average household size has decreased. But the demand for housing increased.
While population growth has slowed due to closed international borders – there were up to 200,000 households that have not arrived in Australia in the past two years, who would have done so if population growth had remained where it was before the pandemic – this was offset by local factors .
“Over the entire Australian population of more than 25 million people, a decrease in the average household size … would add about 140,000 households,” she said.
Housing stock expected to grow faster than population growth
Ms Ellis said that – with the flow of overseas migration effectively coming to a halt while international borders were closed – people from parts of Australia not in lockdown at the time tended not to move to cities that were in lockdown.
“So this wasn’t so much about city folk wanting tree changes, but rather the interruption of the long-standing trend of others going to the big smoke,” she said.
“Regardless of the source of the change in population flows, there is no denying that prices and rents have risen significantly in many regional housing markets.”
She said that internal migration was returning to a more typical pattern and that overseas migration was slowly ramping up.
“It will be some time before students and other migrants return to the numbers seen before the pandemic.”
However, she said the Reserve Bank’s expectation was that new home construction would remain solid for years to come.
“We expect [housing stock] will grow at a rate comparable to that seen in the first decade of this century, but not as much as during the apartment building boom in the second half of the 2010s,” she said.
“This is probably still enough for the housing stock to grow faster than the population.”
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