Financial assistance for home buyers can come in several forms. On the surface, government cash handouts or tax relief strongly appear to make housing more affordable. But those with financial expertise on the subject are not so easily convinced.
Consider a program that offers $15,000 assistance to prospective homebuyers with limited purchasing power. This appears, on the surface at least, to be effective government assistance to a first time buyer when there is a shortage of affordable housing: help the buyer meet the asking price.
But according to experts, this is a misreading of the situation. In a market where demand exceeds supply at a particular price point, more funding will ramp up competition for the units that are now “affordable”. Overall, the $15,000 is going to inflate the cost of housing in the market, in effect pouring gasoline on the flames. Far from helping to solve a housing crisis, it is exacerbating the situation, effectively putting an extra $15,000 into the pockets of developers, speculators and vendors.
For an analysis of how this cost inflation actually occurs, and how other government grants and tax concessions also fan the flames while benefiting people who are more affluent, read more in The Sydney Morning Herald: Where Sydney homes do and don’t get a subsidy for sale and by how much
