Federal MP Andrew Broad’s recent ill-considered suggestion for banks to lend 100 per cent of the purchase price to first home buyers would quickly see prices sky rocket, with borrowers limited only by their borrowing capacity. Is this really helping them?
It is unclear whether Mr Broad was also suggesting that they also be able to borrow the closing costs associated with the purchase – stamp duty, legal fees, etc – which can be quite significant (approximately 4-5 per cent of the purchase price). For example, a $600,000 purchase would attract costs of up to $30,000.
If borrowers are still required to find these costs, much of the barrier-to-entry remains in place. And if the bank is going to pick up the tab for closing costs too, it would be a disaster waiting to happen.
Well intentioned as it may be, Mr Broad’s proposal would deliver a quasi-US style no-recourse lending market – and we all know how that ended! With borrowers having no skin in the game, they could effectively hand back the keys and walk away, possibly leaving the bank with higher exposure than what they can recover from the sale of the property.
Perhaps a more sensible way to help first home buyers get a foothold in the market is to – as former Senator Bob Day, suggests – remove the planning regulations which he argues have the effect of driving home prices up artificially, thus pricing new and low income home buyers out of the market.
As Professor David Flint and I say in Give Us Back Our Country (Connor Court, 2013), the next generation of Australians and their children are paying through the nose to satisfy the moral superiority of the politicians and bureaucrats.
Mr Day proposes a pragmatic down-to-earth five-point plan to ensure that the present and future generations of Australians can buy their own homes. They are:
- Where they have been applied, urban growth boundaries or zoning restrictions on the urban fringes of our cities need to be removed. Residential development on the urban fringe needs to be made a “permitted use.” In other words, there should be no zoning restrictions in turning rural fringe land into residential land.
- Small players need to be encouraged back into the market by abolishing compulsory “Master Planning.” If large developers wish to initiate Master Planned Communities, that’s fine, but don’t make them compulsory.
- Allow the development of basic serviced allotments i.e. water, sewer, electricity, storm water, bitumen road, street lighting and street signage. Additional services and amenities (lakes, entrance walls, childcare centres, bike trails, etc. can be optional extras if the developer wishes to provide them and the buyers are willing to pay for them.)
- Privatise planning approvals. Any qualified town planner should be able to certify that a development application complies with a local government’s development plan.
- No up-front infrastructure charges. All services should be allowed to be paid for through the rates system i.e. pay “as” you use, not “before” you use.
There is no silver bullet to helping first home buyers. But an effective solution must be sustainable and will most likely stem from government getting out the way, rather than trying to find an artificial solution.