Govt in "moral hazard" over FHOG incentives
12/03/09 02:40 PM
As the first
home owners grant (FHOG) deadline approaches, the
government is caught up in an ethical debate
whether to continue first homebuyer stimulus or
focus on other market segments.
Since the inception of the FHOG, the number of first homebuyers entering the market has reached a national height of 26.5% according to the latest ABS figures.
However, with unemployment also on the rise, there is growing concern that new borrowers are potentially being encouraged into a compromising situation.
In discussions concerning its May budget, the Rudd government expressed concern over the potential "moral hazard" of stimulating the first homebuyer market at a time when unemployment was rising.
The government is considering whether it would be better to re-focus housing stimulus to further investments in public housing, and away from the first homebuyers sector.
Adding to the debate is market research group, Residex, which found that the government grant is being absorbed into increasing prices, as first homebuyers continue to drive the bottom half of the housing market.
In its latest market report, Residex warned that if new borrowers became unemployed, there would be "an increasing level of negative equity and defaults in this group."
"Government needs to consider now, rather than in the May budget, what it will do at the end of the grant period," the report stated.
"Termination may result in the very thing they have been trying to avoid: further reductions in demand, which will increase the rate at which these properties could fall in value in a situation where unemployment increases."
Since the inception of the FHOG, the number of first homebuyers entering the market has reached a national height of 26.5% according to the latest ABS figures.
However, with unemployment also on the rise, there is growing concern that new borrowers are potentially being encouraged into a compromising situation.
In discussions concerning its May budget, the Rudd government expressed concern over the potential "moral hazard" of stimulating the first homebuyer market at a time when unemployment was rising.
The government is considering whether it would be better to re-focus housing stimulus to further investments in public housing, and away from the first homebuyers sector.
Adding to the debate is market research group, Residex, which found that the government grant is being absorbed into increasing prices, as first homebuyers continue to drive the bottom half of the housing market.
In its latest market report, Residex warned that if new borrowers became unemployed, there would be "an increasing level of negative equity and defaults in this group."
"Government needs to consider now, rather than in the May budget, what it will do at the end of the grant period," the report stated.
"Termination may result in the very thing they have been trying to avoid: further reductions in demand, which will increase the rate at which these properties could fall in value in a situation where unemployment increases."