If there’s anyone who thinks ScoMoBank is a good idea — other than the Coalition and an ALP now sounding a tad embarrassed to have rushed to endorse it — they haven’t yet spoken up.
The idea for taxpayers to subsidise first home buyers by guaranteeing the gap between a buyer’s deposit and 20% seems to have been prepared on the back of an envelope on the way to the Liberal launch. According to critics it will variously lead to higher interest rates, encourage people to take on too much debt, leave borrowers with negative equity, reverse an important Howard government privatisation, or be too trivial to affect the market.
Quite the series of endorsements. And that’s apart from ideological critics who attacked it as an unnecessary market intervention. And much of the criticism has even been reported by the two companies that stand to benefit most from it, News Corp and Nine — who own the major online real estate platforms and would thus get a boost from more first home buyers being pulled into the market, should the policy actually have any noticeable effect.
What’s so frustrating about ScoMoBank is that it’s of a piece with how bad, inept, idiotic housing policy has been in Australia for decades. A desperate political party, which has been waging war on young Australians on behalf of wealthy older voters on climate change, on taxation, on health insurance, on housing, on education, decides at five minutes to midnight it needs to make a token effort to pretend to give a damn about people under 30, and proffers a half-arsed policy without research, modelling or cabinet consideration, one that if it actually works will just add another subsidy to the demand side of the equation on housing.
Housing policy is the intersection of a number of difficult policy areas — immigration, planning, construction industry regulation, infrastructure, social policy, higher education policy, monetary policy, financial regulation, corporate regulation. Impressively, Australian governments have managed to stuff up most of those areas over the last quarter century, but the biggest culprits have been state and local governments and their unwillingness to add to housing supply until the last few years.
The federal government has played a lesser role but exacerbated the problem by encouraging demand via tax breaks for investors and first home buyer schemes, a higher education policy based on dumbing down our world-class universities to attract hundreds of thousands of foreign students, and hundreds of thousands of temporary working visas to appease business. Chucking yet another subsidy scheme into that mix, albeit so small as to be marginal, just perpetuates the Commonwealth’s long, bungling history.
The fact that it is entirely without an evidentiary base is consistent, too — it was this government that abolished the National Housing Supply Council, which had done some great work in establishing the research basis for sorting out the mess.
If the government wanted to address the cost of mortgage insurance for home buyers, there were other options available to it: the Productivity Commission outlined a series of reforms that aimed to improve competition in the currently highly concentrated mortgage insurance market (dominated by Genworth and QBE) and ensure the benefits were passed on to consumers. But it noted that
[Lender Mortgage Insurance] is no longer a tool … that particularly assists low-income earners enter the property market. In fact, most of the benefits of LMI are likely to accrue to middle- and high-income earners … The widespread use of LMI has a negative aggregate effect on low-income earners’ abilities to enter the housing market. By increasing the availability of credit, LMI contributes to increases in property prices, putting home ownership further out of reach for these borrowers.
In its April Financial Stability Review the Reserve Bank pointed out that “Lenders mortgage insurers … are also well capitalised, but their profits remain under pressure. Revenues have declined due to the low volume of new high LVR mortgage lending, which is generally insured.” The RBA also noted that “loans with an LVR over 90 per cent remain less than 7 per cent of housing loan approvals, while new IO (Interest only) lending has fallen to around 16 per cent of total loan approvals and 7 per cent of owner-occupier loan approvals”.
All of this suggests that the government’s policy won’t do a lot for low-income earners trying to scrape together a 5% deposit — they’re struggling to even get into the market at the moment.
Indeed, the government’s own proposal would be available for first home buyers on combined incomes up to $200,000, who would be helped by taxpayers to borrow larger sums than they would otherwise have access to.
Yet another counterproductive housing policy? Who’d have thought it. And who would have thought the ALP would rush to endorse such a dumb idea?