Netherlands Warns About Coalition Scheme for Mortgages in Australia
Synopsis
Just weeks away from the Australian federal election, Peter Dutton announced the Coalition’s plan to make mortgages in Australia more affordable. The plan would incentivise first time homebuyers by making a portion of their…
Just weeks away from the Australian federal election, Peter Dutton announced the Coalition’s plan to make mortgages in Australia more affordable. The plan would incentivise first time homebuyers by making a portion of their mortgage tax deductible. However, this tax benefit only applies to newly built properties.
However, the Coalition’s housing proposal has received criticism from others who have seen similar plans overseas.
Dutch Warning
Cody Hochstenbach, an associate professor in urban geography at the University of Amsterdam, has warned about the potential inflationary aftermath. He says a similar scheme in the Netherlands drove up home prices. Due to the fact that it is a subsidy which diverts revenue away from the national budget, these are long-term effects to consider.
“The Netherlands should serve as a cautionary tale: it’s not a good scheme,” he said.
A similar policy for mortgages in Australia would apply to about 30,000 households annually, according to the Coalition. However, industry estimates show the figure could be closer to 60,000. This would have a much larger effect on the budget.
“I recognise this tendency around the world of wanting to help first home buyers, and they typically come up with financial instruments to help,” Hochstenbach says.
Differences in the Coalition Plan
In contrast to the Netherlands, Dutton’s plan for mortgages in Australia has more restraints. Firstly, it’s only directed towards first time homebuyers. Secondly, the deduction policy would only be available to individuals who earn less than $175,000 a year. That number would increase to $250,000 for couples. Additionally, it only applies to the newly built homes which are being built to address the housing shortage.
However, Michael Fotheringham, the managing director of the Australian Housing and Urban Research Institute says Australia should also consider how these policies have played out in the US.
“The most pertinent example is the US, where this has been used. What happens is people borrow more because they factor in the tax deduction,” Fotheringham says.
According to Fotheringham, the scheme would undoubtedly drive prices up.
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