It’s time the government stops pumping cash into the housing market

Dr Peyman Khezr, Senior Lecturer, Economics, Finance and Marketing 

Topics: HomeBuilder scheme, first home buyer, inflation, housing affordability 

“Previous government interventions, such as the HomeBuilder scheme, have had unintended consequences that have worsened housing affordability in Australia.  

“Subsidies of this nature typically do not cause long-term positive impacts on the market and often result in market disruptions.  

“The solution lies in identifying and addressing the source of the problem, which is twofold: supply and demand.  

“Grants, like HomeBuilder, shift the demand by enhancing affordability for potential homeowners. However, the supply cannot respond rapidly enough in the short term to cater to this surge in demand.  

“Consequently, the price mechanism reacts to the excess demand by inflating the cost of home construction. This increase eventually diminishes affordability to a level where supply can meet demand.  

“Put simply, grants rapidly stimulate demand while supply struggles to keep pace, ultimately leading to a rise in prices. 

“Cash injections in the form of grants only inflate prices and deteriorate housing affordability in the long run.  

“Instead of pumping cash into the housing market, the government should identify sources of market inefficiencies and regulate the market to address these issues.  

“For instance, speculation in the housing market is a significant problem that worsens housing affordability and exacerbates inequality.  

“Adequate regulation could reduce or eliminate speculative demand for homes, allowing first-time home buyers to compete more fairly in the market.  

“Other sources of market inefficiencies relate to the market mechanism itself.  

“Regulations promoting consumer protection would improve fairness in the housing market and benefit home buyers in the long term.” 

Dr Peyman Khezr is a Senior Lecturer in the School of Economics, Finance and Marketing at RMIT and a member of RMIT’s Behvaioural Business Lab. He is an applied market designer with an interest in the housing market.