On 22 May, Housing Minister Chris Bishop has announced that the Government will no longer fund first home buyers grants. Although the sum of this funding is relatively small ($60 million) within the whole budget, it is significant in terms of reprioritising housing policy. Where credit is due for a good step, credit is given here. This step is a right measure and it helps creating a more just society.
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The reasons why I argue this is a good step are also described in my book (chapter 7, pp. 250-252). Here I summarise those findings.
Regarding housing, it is crucial to note that this policy area is a borderline between necessary and voluntary state responsibilities.
There are several arguments about the economic responsibilities of the state, and economists tend to agree on these roles, ever since Adam Smith published The Wealth of Nations in 1776. According to the original recommendation, the governments should provide the capacity for physical security (defence expenditure), jurisdiction, and infrastructure. The recommendation of providing infrastructure was derived from three experiences: 1) that market-oriented solutions do not provide those services which do not yield a high return on the investments; 2) the period of the investment to become profitable is too long, or 3) the benefits of an investment are harnessed by others than the investor. It is worth noticing that all three experiences are rooted in a short-sighted economic approach.
Based on these guidelines, governments typically organise security services and jurisdiction. However, the government investments in infrastructure services vary. Besides, economists also agree that a minimum level of health services, a complete education system (primary, secondary, and tertiary) should be provided by the states. It is debated how superannuation should be organised. Finally, it is relevant to note that governments tend to subsidise public transportation as well, and after 2000, there are significant state investments in telecommunication networks too. Importantly, housing, as part of the basic infrastructure of the society, tend to yield sufficient profit rates so that it could be organised on a market basis.
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However, among those investments that are performed on market basis, the return on real estates is on average the lowest as the largest investment database by MorningStar suggests. This means that it is only optional for governments to play a role in real estate services, such as housing. Meanwhile this role is optional, the evidence suggests that where public housing has a major role in the housing market (for example in Austria, where 60% of the rental properties are provided by the state, social housing providers), the overall social welfare and the quality of life are higher. So, when states play a role in the housing market, the overall outcome is positive for the society.
If governments intend to play a role in housing, they should follow a bottom-up approach. Housing as a service has a ranking in terms of the qualitative feature of utilising them. From the lowest quality up to the highest, the ranking is the following: a) emergency home - b) transitional housing - c) social housing - d) rental property - e) rent to own contracts - f) ownership with a mortgage - g) mortgage-free ownership. Governments should first address the problems of emergency homes, and then when it is sorted (no homelessness), governments may provide transitional housing, and finally, social housing (the state provided rental properties).
It is not recommended for any government to assist people in acquiring ownership of housing because the property may end up in the market, and this might lead to further inequalities and divides in the society. Ownership is the barrier, because this is what might provide capital gains for owners. Renters are deprived from any capital gains.
This simple logic explains why the scrapping of the First Home Buyers Grants is a good measure: it provided assistance to acquire ownership. Reprioritising these sources to social housing is preferable.
While the Labour Government between 2017 and 2023 intended to provide housing assistance on a wide spectrum (ranging from transitional housing to helping people acquire homes), this approach needed to be revised and narrowed down. (A detailed analysis about the problems of Labour’s former housing policy is provided on my youtube channel: link is here) Although the coalition government announced this step of ceasing the First Home Buyers Grant, they still need to provide a new, comprehensive housing policy. Hopefully, they follow the recommended bottom-up approach and they focus on abolishing homelessness first.