"SA Govt to help home buyers with loans"
30/01/2007. ABC News Online:
The South Australian Government says it will help home buyers enter the market by contributing to the cost of a home in return for a share of any capital gains made on it.
Government agency HomeStart has developed a new loan that gives a borrower up to 35 per cent of the purchase price.
When the property is sold, the Government takes the original contribution, plus up to half of the increase in the property's value.
Housing Minister Jay Weatherill says the scheme will help up to 500 people a year.
'What it's about is getting young people, families, people who are currently locked out of the housing market into a home,' he said.
'It will boost their borrowing capacity by about 35 per cent and it's a fantastically innovative product.'
Mr Weatherill says the program will allow low to middle income earners a chance to break the rental cycle.
He says the loan will make it more affordable for people to enter the market.
'It's really about sharing the capital growth in the value of a home,' he said.
'HomeStart Finance in that way is able to maintain mortgage payments at a low level an help these young families on low incomes into their first home.'"
What Minister Weatherill fails to mention is that housing prices remain at record levels of unaffordability primarily because of state government regulation. It maintains a stranglehold on supply by not releasing new land for development, and particularly by zoning privately held large pieces of land so it cannot be subdivided. This in turn limits supply and drive house prices through the roof (pardon the pun). see Why Land is Bananas. Government regulation was recently identified in an international study as why land prices in Australia are so high. So high, in fact, that out of 159 cities around the western world Adelaide ranks 27th in unaffordability.
So why am I not that impressed by this policy?
By increasing the ability of some 500 families to pay more, without increasing the amount of properties available, all you do is increase the price. So it benefits 500 (no doubt worthy) families to the detriment to all other home buyers.
Who benefits? Well mainly, the State Gov who gets extra for land taxes, and also gets a cut of the profits when the home is resold. The banks also get more interest on the higher mortgage.
So I say to the State Government - release your stranglehold on land release and division and prices will naturally and dramatically come down. House prices: it's not what you can do for us, it's what you can stop doing to us.
Footnotes and Links:
Demographia - See 3rd Annual Demographia International Housing Affordability Survey (2006)
News Release by Minister of Housing Jay Weatherill
Stewart Glass - land prices
Topics: Adelaide South Australia Housing Affordability Land Prices