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

Politics Panel: Australia's intergenerational gap

Fri, 25 May 2018

I was one of the panel members of this podcast which was on ABC Radio National. 25 minutes of interesting discussion.

At this link: https://www.abc.net.au/radionational/programs/breakfast/politics-panel-australias-intergenerational-gap/9798848 

Politics Panel: Australia's intergenerational gap

 With the federal budget handed down and the battle lines emerging for the next election, Australia's intergenerational gap is shaping up as a major political issue.

The Coalition is promising a host of sweeteners for retired voters while Labor is promising to pump more money into education and get housing prices down.
If you're a voter, there's a good chance your view of those promises will be informed by the year you were born.

Do we need to be worried about Australia's economic outlook?

Tue, 22 May 2018

This article first appeared on the Yahoo7 Finance web site at this link: https://au.finance.yahoo.com/news/need-worried-australias-economic-outlook-060611703.html 

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

Do we need to be worried about Australia's economic outlook?

The Reserve Bank of Australia reckons that the next move in official interest rates is more likely to be up than down. RBA Governor has said so in recent weeks as he talks up the prospects for the economy over the next year or two.

This is disconcerting news for everyone out there with a mortgage or a small business loan, especially in a climate where the business sector is doing it tough and when wages growth is floundering near record lows. The good news is that the RBA is likely to be wrong and the next move in interest rates could be down, such is the run of recent news on the economy. Failing an interest rate cut, the hard economic facts suggest that any interest rate rises are a long way into the future and if they do come, there will not be all that many.

At this point, it is important to bring together the issues that would need to unfold to see the RBA pull the lever to hike interest rates.  At the simplest level, the start of an interest rate hiking cycle would need to see annual GDP growth above 3.25 per cent, the unemployment rate falling to 5 per cent and less, wages growth lifting towards 3 per cent and more and underlying inflation increasing to 2.5 per cent.

This is where the RBA expectation for higher interest rates is on very thin ice.