Addressing housing affordability with a sellers subsidy

Tue, 07 Mar 2017  |  

This article first appeared on the Yahoo7 website at this link: https://au.finance.yahoo.com/news/can-we-fix-housing-affordability-from-supply-side-232827776.html?soc_src=social-sh&soc_trk=tw 

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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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Why are Bill Shorten and Labor scared to run on the economy?

Tue, 21 Mar 2017

This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2017/mar/16/why-are-bill-shorten-and-labor-scared-to-run-on-the-economy 

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Why are Bill Shorten and Labor scared to run on the economy?

The dust is settling from the Western Australian election and there are some implications for the way the federal Labor party should conduct itself from now until the next election if it is to enhance its chances of winning.

For the Liberal party, the lessons are clear. It might sound trite to mention it but its electoral success will depend almost exclusively on its ability to deliver materially better economic conditions between now and election day.

For Labor, the task is easier. It needs to take the initiative on the economy, economic policy, the budget deficit and government debt and highlight how poor the Coalition has been in most aspects of economic managements since the 2013 election.

In those three-and-a-half years of the Coalition being in charge of the economy and budget, growth has been sluggish despite favourable conditions in Australia’s major trading partners. The Australian economy should be stronger because of the welcome news of the Australian dollar falling sharply in recent years, which has provided a boost to domestic economic conditions. What’s more, interest rates have been cut to record lows, yet the economy has been struggling to register annual GDP growth near 2.5%, the unemployment rate is the same as when the Coalition won the 2013 election, wages growth has plummeted to a record low, and the government debt has grown significantly faster than during the previous Labor government, which of course included the fiscal stimulus measures that kept Australia out of recession.

Ever since the mid-1990s, the Labor party has been reluctant to run hard on issues to do with the economy. For some reason, it is riddled with self-doubt that stems, it appears, from the high interest rates of the late 1980s and early 1990s, and its proactive use of budget debts and moderate debt accumulation during the global crisis to ensure Australia kept growing and to protect an estimated 200,000 jobs.

A $2 billion national building snow job

Sat, 18 Mar 2017

Prime Minister Malcolm Turnbull reckons his Snowy Hydro $2 billion investment is a “nation building project”.

Yes, that is what he said. Really. Turnbull think a one-off $2 billion government infrastructure project is “nation building”.

Let’s look at $2 billion in the context of the Australian economy.

In the December quarter 2016, Australia’s GDP was $435,445 billion dollars (seasonally adjusted). This works out at $4,769 billion a day which makes the $2 billion snow job about 10 hours GDP.

Useful? Sure!

Nation building? Ha!

By 2020, Australia’s GDP will be around $510,000 billion a quarter and $2 billion will be akin to about 8 hours GDP.

Here’s what elese $2 billion is now days.