PROPERTY $1.5b boost to buy homes 'nonsense' October 16, 2008 AFP
A prominent economist has rubbished the federal government's $1.5 billion boost for first home buyers announced on Tuesday.
University of Western Sydney associate professor of economics and finance Steve Keen said the increase in the first home owners grant scheme continued the same policy that initially placed many mortgage holders into debt trouble.
"It is nonsense," Dr Keen said.
Dr Keen said house prices were artificially inflated when the previous Howard government lifted the first home owners grant earlier this decade.
"That added fuel to the speculative fire of finance," Dr Keen said.
"This may not have the same impact this time around because the economic circumstances and expectations are drastically different."
As part of the government's $10.4 billion stimulus plan for the slowing economy, first-time home owners who buy a newly built home are eligible for grants up to $21,000, a rise of $14,000 on the previous scheme.
A first home buyer of an established dwelling will have a 100 per cent increase in their grant to $14,000.
However, this played to the nation's obsession with property, Dr Keen said.
"It is just a continuation of the same mindset that we can't let property prices fall," he said.
"They are so damn high. They have no choice but to fall in the long run."
First home buyers have until June 30 next year to receive the super-sized grants.
More than 150,000 first home buyers are set to take advantage of the new package, Prime Minister Kevin Rudd said.
Average house prices in capital cities fell by 0.3 per cent in the June quarter this year, indicating they have peaked, Dr Keen said.
However, thei
r levels still show the indebtedness of borrowers, he said.
"The median house prices are about seven times median incomes," Dr Keen said.
"That is just unaffordable."
It is important for the Reserve Bank of Australia (RBA) to cut the cash rate, he said.
Markets are pricing a 1.25 percentage fall in the overnight cash rate, currently at six per cent.
Lower rates would provide some relief for borrowers in paying their debt, he said.
"But it is not going to keep house prices up," he said.
"There maybe a short-term filip, which I would hate to see because they are already at ridiculous levels.
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