Mortgage stressed?

Rudd-Gillard increased home owners grant to make housing more expensive

First home buyers of the past two years have been bled—by their own government.

When the First Home Owners Grant was increased by the Rudd-Gillard government in October 2008, the public was told it was to support construction, and make housing more “affordable”.

For tens of thousands of young couples and families, that was music to their ears, having been locked out of the housing market by the skyrocketing house prices.

However, what they didn’t know at the time, is that they were being marked as the future debt slaves who would prop up Australia’s teetering housing bubble and banking system.

That mortgage stress that tens of thousands of you are now enduring? That’s the weight of Australia’s bankrupt financial system that you are now carrying on your backs.

As revealed—but only in passing—in the June 2010 book “Sh*tstorm” by The Australian’s Lenore Taylor and David Uren, on the weekend of October 11-12, 2008, when Australia’s financial system was on the brink, an emergency meeting of the Rudd government’s Strategic Priorities and Budgetary Committee (SPBC)—Rudd, Julia Gillard, Wayne Swan and Lindsay Tanner—which included Treasury Secretary Ken Henry and Reserve Bank Governor Glenn Stevens, decided as one of their courses of emergency action to support the housing market, to reverse the slight fall in house prices and get them rising again.

How? By increasing the First Home Owners Grant. Use public funds to induce buyers to overcome their natural prudence and rush into the market, to drive up prices—which it did, by around triple the size of the increased grant. In other words, the worsening affordability of housing that occurred as a result of the increased grant wasn’t an unintended consequence, it was the aim.

Taylor and Uren report, “Treasury’s analysis had shown that, far from helping first home buyers get into the market, most of the benefit went to the people selling them their first homes, as the additional few thousand dollars was added to the price. 'One of the risks in the Australian economy—and we saw it playing out in the U.S. and elsewhere—was the risk of house prices falling sharply. One of our concerns about the option of the first home buyers scheme is that it gets house prices up and that was the point. In that week, we found ourselves quite comfortable with it for that reason. You’re in a situation where bidding up house prices is not a negative,’ [Ken] Henry says.” [Emphasis added.]

It was that same weekend that the government propped up the banks with the twin guarantees—of deposits and of foreign borrowings—because the banks pleaded if they didn’t, “they would be insolvent sooner rather than later” (The Great Crash of 2008, by Ross Garnaut and David Llewellyn-Smith).

But equally crucial to propping up the banks, was supporting their loans into the property bubble, for which most of the enormous foreign debt of Australia’s banks—over $800 billion, of which over $400 billion was on 90-day-terms—was incurred.

And for that, 135,000 young couples and families were induced to rush into a mortgage, of which half are now mortgage stressed or severely mortgage stressed, and are waiting for the next interest rate rise to knock them over.

Citizens Electoral Council leader Craig Isherwood today condemned the government for using families to prop up the banks:

“Instead of implementing the CEC’s Homeowners and Bank Protection Bill, to keep the banks functioning and keep families in their homes, the government lied and insisted the banks were 'sound’, all the while planning to subject young 'working families’ to extreme economic hardship, in a classic 'behavioural economics’ manipulation, to prop up the bankrupt system,” he charged.

“And all it did was buy time,” he continued, “time which is now running out. The Commonwealth Bank and the Reserve Bank are loudly insisting there is no property bubble, hoping to forestall the inevitable collapse which will wipe them out. And the world financial system is dangling by a thread, holding on to the U.S. Federal Reserve’s promise to print more money—Quantitative Easing 2—which means the system can no longer be saved.

Mr Isherwood concluded, “The more the details emerge of how the governments and central banks bailed out the financial system in the past two years, the more it proves the only solution is to listen to Lyndon LaRouche.”