Addressing housing affordability with a sellers subsidy

Tue, 07 Mar 2017  |  

This article first appeared on the Yahoo7 website at this link: 


Addressing housing affordability with a sellers subsidy

Let’s fix housing affordability from the supply side.

Instead of cash incentives to buyers which will only fuel a surge in already strong demand and further add to price pressures, what about a government policy that offers, say, $15,000 for owner occupiers to put their house on the market and sell it, and investors $25,000 to sell their investment properties?

Think of the flood of houses that would come on to the market as people close to selling but not quite across the line take advantage of the Home Sellers Grant.

Investors, increasingly frustrated with very low rental yields and now perhaps starting to fret about the prospect for higher interest rates in the not too distant future, might get out while the going is good. The fresh supply would likely be substantial.

Buyers would likely be flooded with choice. Sellers may be inclined to accept a lower selling price knowing it will be topped up by the grant. Of course, there could be a price threshold for the selling price ensuring sellers of super expensive property don’t get the subsidy. This could be assessed at the median price for each town and city calculated from the various house price data bases.

This idea goes to the point that the last thing housing markets in the hot areas of Australia need right now is policies that create extra demand from home buyers. Already, the shortage of supply relative to that demand is seeing house prices rise as astonishing rates which is creating market risks to the economy and distortions in terms of home ownership and financial security.

This is why any policy to increase first home buyer grants or to give stamp duty concessions are misguided. Shared ownership of property with the government chipping in 25 per cent of the value is the latest hair-brained scheme to be dusted off. Such policies merely add to demand as new buyers are enticed to the market, and they have an added capacity to bid even more for a property. It is likely that buyers, armed with this new leverage, will actually bid prices higher simply because they have access to more funds.

The issue with a sellers grant would be to lower the threshold price that the seller would be willing to accept. If, for example, the expected (or auction reserve) price was $650,000, this could be made up of $635,000 plus the grant. The houses would be sold more easily.

But it must be acknowledged that even this idea is something of a band aid solution with a high cost to the budget.

The long run and meaningful ways to address housing affordability are remarkably simple. At the risk of repeating the key issues, Australia needs to build more dwellings in areas that people want to live that also have access to high quality infrastructure including transport, schools, hospitals, shops and work.

These are long run issues of course – houses and infrastructure take time to build and develop.

Which means a sellers subsidy is a short term solution that can be in place until prices moderate under the weight of new supply. Until then, and even though the sellers subsidy might sound a bit crazy, it might just work.

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As house prices fall across Australia, should we be worried for our economy?

Tue, 13 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: 


As house prices fall across Australia, should we be worried for our economy?

Are you a home owner?

If you are in Sydney, Perth and Darwin, you are losing money at a rapid rate.

In Melbourne and Canberra, prices are topping out and there is a growing risk that prices will fall through the course of this year. If your dwelling is in Brisbane or Adelaide, you are experiencing only gentle price increases, whilst the only city of strength is Hobart, where house prices are up over 13 per cent in the past year.

The house price data, which are compiled by Corelogic, are flashing something of a warning light on the health of the housing market and therefore the overall economy. For the moment, the drop in house prices has not been sufficient to unsettle the economy, even though consumer spending has been moderate over the past year.

The importance of house prices on the health of the economy is shown in the broad trend where the cities that have the weakest housing markets tend to have the slowest growth in consumer spending and are the worst performance for employment and the unemployment rate. The cities with the strongest house prices have strong labour markets and more robust consumer spending.

Trump could cause the next global recession: here's how

Wed, 07 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: 


Trump could cause the next global recession: here's how

The Trump trade wars threaten the global economy. This is not an exaggeration or headline grabbing claim, but an economic slump based on a US inspired global trade war is a distinct and growing possibility as it would dislocate global trade flows, production chains and bottom line economic growth.

Up until a few weeks ago, there was a strong enthusiasm for the economic policies of US President Donald Trump. Tax cuts and planned infrastructure spending were seen to be good for the US and world economies. US stocks and many around the rest of the world rose strongly, to a series of record highs. At the same time, bond yields (market interest rates) surged as the market priced in interest rate hikes and inflation risks from the ‘pro-growth’ policies. It was seen to be good news.

Very few, it seems, were worried about the consequences for US government debt and the budget deficit from this cash splash, especially when the US Federal Reserve was already on a well publicised path to hiking interest rates.

About a month or two ago, a few of the more enlightened and inquisitive analysts started to focus on the fact that the annual budget deficit under Trump was poised to explode above US$1 trillion with US government set to exceed 100 per cent of annual GDP.

A debt binge fuelled by tax cuts was a threat to the economy after the temporary sugar hit.