Property markets are complex and very much intertwined with the economy. If only our political leaders and those empowered to manage federal, state and local economies had a better understanding of that. Recent policy announcements by the Queensland Government are a classic example of a complete lack of understanding of the connectivity between property markets and the economy.
The Queensland government has announced that it will increase its first home owner’s grant for new property from $15,000 to $20,000 for a year from 1 July. Dumb policy number one! The government has also introduced a three per cent tax on the purchase of a Queensland property by a foreign buyer. At least the government is consistent; dumb policy number two!
To first put some context around both of these new policies, one needs to understand that Queensland (and Australia as a whole) are already approving more new dwellings than any other period in history. 49,532 new dwellings were approved in Queensland during 2015, significantly more than the 36,653 annual average across the last ten years.
Meanwhile, Queensland’s population growth rate (demand) has eased to 1.2 per cent last year, well down from the 1.96 per cent annual average over the last decade. One doesn’t need to be a state Treasurer to interpret these mathematics!
Dumb Policy #1
Most of us don’t have a problem with providing an incentive to help first home buyers enter the property market. Whether governments choose to offer a $1,000 or $20,000 incentive, no one likes being dictated to about where to live. There are more than 1.8 million properties in Queensland but the grant is only available on 2 per cent of those the properties (the 36,653 new properties built each year). A government that sincerely wants to help a first home buyer would create an incentive that was applicable to 100 per cent of the property options. In reality, the grant is targeted at an already over-stimulated construction industry. The twelve month window which the extra $5,000 grant is available for merely creates a call-to-action which marketing arms of property companies will use to lure vulnerable buyers in to purchasing over-priced new properties. Many of the locations where these new properties are found are over-supplied and I wonder if the government has even contemplated how they feel about ‘helping’ a first home buyer to purchase an asset when the value at settlement may well end up below the initial contract price. Get your priorities right!
Dumb Policy #2
Much of the well-documented property over-supply is as a result of a massive increase in apartment development; 49 per cent of all new dwellings approved in Queensland over the last two years are attached dwellings. Foreign buyers are attracted to apartments and their attention is slowly turning away from Sydney and Melbourne and more towards places like Gold Coast and Brisbane. For a state with the second highest unemployment rate in the country, I would have thought it would make sense to roll out the red carpet to foreign investors. It seems that the state government believes that whacking a foreign buyer with an additional $15,000 to $20,000 tax on a typical property will somehow encourage them to inject much needed capital in to Queensland’s fragile economy. The Queensland economy will benefit from an increase in property transaction volumes but introducing a new tax is likely to have the opposite effect. Just dumb!
Yes, Queensland (and Australia in general) needs economic stimulus and property has some role to play in that. But, that’s not achieved through limiting the choices of one segment of buyers and whacking a big tax on another segment of buyers.