Government ‘Help’ Works Just like You’d Expect

As Thomas Sowell demonstrated exhaustively in Basic Economics, government meddling in the housing market, in the name of ‘fairness’, invariably does nothing by drive up prices. But basic economics is a closed book to Anthony Albanese and Jim Chalmers. So, they meddle and meddle in the housing market, all the while prating about ‘fairness’ – and driving prices through the roof.

They will, of course, blame the failure of their magnificent scheme on their favourite Goldsteins – investors. You know, the same investors who actually supply rental accommodation. Or, at least, they used to. Thanks to hamfisted government meddling, though, the arse has dropped out of the rental market.

Still, some investors are doing the very thing central-planning-addicted governments fail to comprehend: responding to the perverse incentives of the latest socialist ‘intervention’.

After the federal government’s negative gearing ban made established investment properties unaffordable for many, and then Labor’s controversial deal with the Greens locked them out of mortgages within self-managed super funds, the only effective ­option left for real estate investors is buying new homes […]

An analysis by the Australian of tax impacts and median rents shows that buying a median-priced established property today leaves an investor more than $700 a week out of pocket, whereas a new build puts them behind by less than $215 a week after tax.

Meanwhile, lenders have dramatically reduced the amounts that investors can borrow for established properties because from July 1 next year negative gearing is only allowed for new housing.

So the smart money is doing what smart money always does when Canberra decides to play Monopoly with other people’s houses: it pivots. Lenders report investors who were previously adamant about buying only established properties are now examining new house-and-land packages. Focus Property Group recorded a 46 per cent surge in inquiries since the budget. FIFO workers are selling Perth houses to reinvest in Melbourne greenfields. The flood of investors into new housing estates is already placing first-home buyers under greater pressure.

While some investors are responding to the latest perverse incentive handed down by the government, more are just giving up. Consequently the rental market, that minor detail that keeps roofs over the heads of people who cannot yet buy, is being quietly torched. Once the existing stock is sold off or converted to owner-occupation (the grandfathered loophole that will keep Boomers sitting pretty in negatively geared McMansions for years), the rental pool shrinks. Rents rise. The young get locked into higher rents for longer while trying to save a deposit that has been inflated by the same investors now invading their estates.

Housing Minister Clare O’Neil, whose grasp of supply and demand would make a first-year economics student weep, is already spinning the five per cent deposit scheme as proof of genius:

“Fifty thousand key workers now own a home because this Albanese Labor government backed them in.”

She means, of course, the supposedly ‘skilled labour’ successive governments have imported by the millions, because it’s easier than taking the time to train and hire Australians who’ll only answer back and expect decent wages anyway. Labor aren’t even hiding it: government advertisements in Mandarin, touting five per cent deposits for people who aren’t even citizens, give the whole scam away.

What O’Neil also neglects to mention is that the scheme itself is just another demand-side sugar hit that, in the absence of supply, simply bids prices higher. More than 300,000 people have used it since 2020. The latest cohort has the highest incomes. Shock horror: when you remove income caps and let people buy up to $1.5 million with a five per cent deposit and a government guarantee, the well-off turn up first.

The real kicker is the sheer brazenness of the ‘equity’ rhetoric. Albanese and Chalmers spent the election promising not to touch negative gearing. They broke the promise the moment the numbers looked soft. Now they lecture older Australians about ‘really serious intergenerational pressures’ while the actual pressure – mass immigration, planning strangulation and union-driven construction costs – is studiously ignored. The treasurer, who once worked for a Marxian economist, has decided the solution to a shortage is to punish the people who supply dwellings. (Investors should at least thank their lucky stars Zippy can’t just liquidate them like back in the good old days.)

The result is already visible. Lenders have slashed borrowing capacity for established properties because negative gearing is gone. Buyers’ agents who used to do 50-50 owner-occupier and investor work are now looking at under 10 per cent investor business. First-home buyers are not filling the gap. They are being outbid by the very people Labor claimed to be locking out.

So much for generational equity. The young will get higher rents, fewer rentals and a new-build market colonised by investors who can still claim the tax perks. The older generation keeps its grandfathered advantages. And the Labor government that broke its promise will blame the ‘greedy investors’ it spent years driving out of the established market.

Thomas Sowell would recognise the pattern instantly. Government decides the market is unfair. Government ‘fixes’ it. The people the fix was supposed to help end up worse off. The only equity on offer is equal misery for anyone under 40 who still believes Canberra can abolish the laws of supply and demand by decree.

The Australian dream is not dead. It has simply been gazumped by another Labor thought experiment. And the young are paying the premium.