First Home Owner Grant and low mortgage rates drive housing boom

4 July 2001
By Ian McPhedran in Canberra

Housing starts jumped 9.8 per cent in South Australia in May due to low interest rates and the Federal Government's $14,000 first home builders' grant.

More than 660 dwellings, including 594 houses valued at almost $100 million, were approved.

The surge prompted the industry to urge the Government to extend the scheme beyond December and to warn home builders not to leave it until the last minute to apply.

Australian Bureau of Statistics figures show that the May housing approvals totalling 655 compared with the monthly average of 457.

West Torrens was on top of the list with a 214 per cent jump.  Next was Port Adelaide (110), Woodcroft (131) and the South Coast (55).

Nationwide dwelling approvals rose 25.9 per cent to 11,734, seasonally adjusted, with private houses growing 25.3 per cent.

The surge was led by Tasmania (104.1 per cent up), then Victoria (36.2) and Queensland (33.6).

The worst performer was Western Australia which fell by 8.3 per cent.

Prime Minister John Howard raised the prospect of extending the $14,000 grant for first time buyers of a new dwelling.

"I'll always be very sensitive to the home building industry," he said. "We are keen to have a very strong home building industry continuing indefinitely."

Opposition treasury spokesman Simon Crean said the surge followed the biggest slump ever, which had been caused by the GST.

More than 50,000 jobs had been lost in the building industry in the post-GST slump before March when the Government doubled the first home buyer's grant to $14,000 for new dwellings.

The good economic news was tempered by a drop in retail spending for May, down by 0.5 per cent to $13.33 billion. Only the food and hospitality sectors bucked the downward trend.

Both results meant the Reserve Bank is unlikely to move interest rates after its meeting yesterday.

MBA chief economist Wilhelm Harnisch said anecdotal evidence indicated the housing recovery would continue and strengthen during the next 12 months.

"The recovery should broaden with an increase in the number of trade-up buyers and investors returning to the new housing market," he said.

Housing Industry Association managing director Ron Silberberg said the surge in approvals and its geographic focus in outer metropolitan areas was proof the first home buyers' grant had worked.

ANZ chief economist Saul Eslake said the result showed the interest rate cut and new home grant had turned around the post-GST housing slump.