Why Government grants don't work

Having purchased a house around 8 months ago and now having experienced 6 interest rate rises in that time, I find it interesting to hear the ongoing debate about the rising cost of housing in Australia followed by demands for the government to "do something about it!" In typical political fashion, the Australian Government has been throwing money at new home buyers to help them live the Australian dream as well as stimulate the economy throughout this Global Financial Crisis. But I seriously doubt that this has been a useful exercise. In essence I believe it has actually hurt those people that it was intended to help.
For starters, housing affordability is driven by two forces; the first is the size of the deposit and the second is loan serviceability. Throwing money in the form of a one-off grant to first home buyers certainly helps them with their deposit but it does nothing to help with loan serviceability. And to make matters worse, because so many new home buyers have been clambering over the top of each other to get into the market and access their government grants, it has artificially inflated new homes by an amount roughly equal to the grant. In effect, the grant has passed straight through the hands of the borrowers and into the hands of the developer.
Solving the affordability problem is going to take a lot more than new home-buyer grants. The problem has to do with supply and demand. Everyone wants to live in a nice suburb and have access to good services. But that is an infrastructure issue as much as anything else. You can't create more land, all you can do is make better use of the land you have. And that's not something I hear the government doing anything about.
Why do we all feel we have to live close to the major capital cities? - So we can access good employment opportunities and education for our kids. Why do we want good employment opportunities? - So we can afford a nice house that's close to the city. And so the cycle goes.
So in my view, the only way to resolve the housing crisis is to provide incentives for industries to establish themselves in under developed areas of Australia. Rather than hand outs to new home buyers, why not invest in some real infrastructure and designate satellite cities that offer tax breaks to companies to establish there. Why not start building hospitals and schools before people live there rather than waiting until they have to fight for it?
I met a lady the other day who was selling up from her Northern Beaches property in Sydney and moving to the country. With the proceeds of her suburban house sale she was buying a 7-acre allotment with a large house and 'plenty of room for her daughters to own and ride horses'. The family opportunities in the country were so much greater than what could be afforded in the city.
So perhaps a little more lateral thinking around the problem would see us making better use of this land that we have rather than having us all feel like we have to cram into shoe boxes just so we can be close to the big cities.