The chief executive of Commonwealth Bank, Ralph Norris, has warned the Rudd Government of the dangers of making the enlarged first home buyer grant open-ended, warning that there was a danger that it was helping people buy houses who couldn’t actually afford them.
The Rudd Government increased the size of the first home buyer grant late last year, to $21,000 for new homes and $14,000 for existing dwellings.
Property and construction experts say the enlarged grants, coupled with low interest rates and falling house prices, have helped provide a timely boost to the housing market. The enlarged grants are set to expire on 30 June.
But CBA is worried that the grants are temping buyers into the market who really can’t afford to buy a home. Last month CBA announced it would only give mortgages to first home buyers who could prove they had saved 3% of the purchase price of a home, excluding money from grants.
“I think the first home buyer grant has provided quite a stimulus to the market,” Norris said yesterday. “But we’ve got to be careful this doesn’t become an open-ended offer.
“If you look back to the sub-prime issues earlier in this decade they were largely brought about by people being encouraged to borrow who couldn’t afford to borrow.”
Norris says he does not believe a bubble situation will develop, providing the enlarged grants are a limited measure.
“And that’s why I think there could be some concerns if it became a permanent fixture in the home loan system.”
But Norris is at odds with a number of employer and industry groups, which have called for the grand deadline to be extended, including the Housing Industry Association the Mortgage and Finance Association of Australia.
Yesterday the Sydney Chamber of Commerce added its weight to the calls to extend the deadline.
“Next to the massive reduction in interest rates, the first-home buyer boost has been the most successful stimulatory measure for the economy,” executive director Patricia Forsythe said.
Federal Housing Minister Tanya Plibersek is yet to indicate whether or not the Government will extend the grant.
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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