The Queensland government has given the world a new definition of insanity.

A time-honoured definition is doing things the same way but expecting different results. Queensland’s government, in seeking to breathe life into its failed First Home Owners Construction Grant, has come up with a new form of nuttiness: doing things the same way but giving it a new name.

Since the grant scheme — which gives $15,000 to first-timers who build new homes — was launched in September, just 126 have taken advantage of it. The government’s solution is to keep the scheme unchanged but to rebrand it.

I’m an optimist by nature but I despair of politicians ever understanding real estate or implementing measures that genuinely help the industry.

The Queensland flop continues a long history of failure by government grant schemes for housing. Despite the low success rate, governments continue to offer small sums of money to first-time buyers and wonder why it never works.

The building industry fuels the failure by lobbying government to give handouts to people who buy or build new homes. They must know this approach essentially doesn’t work, but the Master Builders Association has recently lobbied the federal government to boost grants to first-home buyers.

Perhaps the building industry was fooled by the upturn in first-home buying activity in 2009, at a time when federal grants were particularly generous. But it wasn’t the grants that inspired first-time buyers — it was vastly improved affordability through lower prices and sharply lower interest rates, in the wake of the GFC impact.

Grants simply don’t work. They do little to bridge the gap between the cost of a new home and the cost of established housing of similar standard. The new product, on average, costs $70,000 more and a grant of $7,000 or $15,000 doesn’t cut it when young hopefuls do their sums.

The core problem is the component of government taxes and charges in the cost of new dwellings. The research indicates that government imposts such as stamp duty can be as much as 40% of the cost. That means a $400,000 house-and-land package would cost just $240,000 if those imposts were removed.

In offering a relative pittance to buyers, politicians are giving with one hand and taking 10 times as much with the other. And they wonder why their schemes don’t work.

Even a scheme happening in the Port Macquarie region of New South Wales — where first-home buyers can get over $40,000 in benefits through a mixture of council rebates, state government grants and stamp duty concessions — doesn’t come close to bridging the whole gap between new housing costs and established house prices.

You have to wonder: do politicians really fail to understand why their policies don’t work? Or do they indulge in cynical exercises to give the appearance of doing something for young buyers, while continuing to milk real estate as their favourite cash cow?

*This article was originally published at Property Observer

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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