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 

--------------------------

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.

comments powered by Disqus

THE LATEST FROM THE KOUK

The Australian stock market is a global dog.

Sat, 24 Jun 2017

This article first appeared on the Yahoo7 web page at this link: https://au.finance.yahoo.com/news/1381246-234254873.html 

----------------------------------------------------

The Australian stock market is a global dog.

At a time when stock markets in the big, industrialised countries are zooming to record high after record high, the ASX200 index is going no where. So poor has the performance been that the ASX is around 20 per cent below the level prevailing in 2008.

It is a picture most evident in the last few years. Since the middle of 2013, the ASX 200 has risen by just 10 per cent. The US stock market, by contrast, has risen by 50 per cent, in Germany the rise has been 55 per cent, in Canada the rise has been 20 per cent, in Japan the rise has been 45 per cent while in the UK, with all its troubles, the rise has been 15 per cent.

So what has gone wrong?

Tony Abbott and debt

Fri, 16 Jun 2017

With Tony Abbott and governemnt debt hot news topics at the moment, I thought I would repost this artricle which I wrote in April 2013:

Enjoy, SK

------------------------

Here’s a true story. It’s about a man called Tony.

Tony is a hard working Aussie, doing his best to provide for his family. He has a good job, but such is the nature of his work that his income is subject to unpredictable, sharp and sudden changes.

Tony’s much loved and wonderful children go to a private school and wow, those fees that he choses to pay are high. He used to have a moderate mortgage, especially given he was doing well with an income well over $200,000 per annum.

Then things on the income side turned sour.

Tony had a change in work status that resulted in his annual income dropping by around $90,000 – a big loss in anyone’s language.

How did Tony respond to this 40 per cent drop in income?

Well, rather than selling the house and moving into smaller, more affordable premises, or taking his children out of the private school system and saving tens of thousands of after tax dollars, Tony called up his friendly mortgage provider and refinanced his mortgage.

In other words, Tony took on a huge chunk of extra debt so that he could maintain his family’s lifestyle. No belt tightening, no attempt to live within his means, just more debt.