Throw more money at housing? Is our government that incompetent?

iDroid on 10/05/2017 - 18:28
Last edited 11/05/2017 - 10:48

So the budget's answer to housing affordability for first home buyers is to allow first home buyers to access their additional contributions to their super towards a deposit. [edited to be less misleading]

Now, I'm not going to pretend to be an economics expert, but here in my armchair it seems pretty clear to me that if you throw more money at something (equals increases ones purchasing capacity) has the obvious effect of increasing the price of said thing. I've read this theory before and I bet there's mention of it in some economics books out there. /sarcasm

They've been throwing money at housing for so long attempting to increase affordability, you'd think by now they'd start to get it.

I've identified a few possible reasons for this policy and similar 'solutions' they've had for housing affordability, which to you think is most accurate?

Poll Options

  • 7
    Yes our government has no clue here.
  • 38
    No, they're all property investors and serving their interests.
  • 1
    No, they're just buying some votes.
  • 7
    No OP, you've just got no idea, stop blabbering.
Financial

Comments

  • mskeggs on 10/05/2017 - 18:37
    +1

    Demand side measures (giving money to punters to buy) are always super popular.
    The people getting the money are stoked, and the vendors who pocket it 10mins later are similarly happy.
    And the state governments make lots from stamp duties. Win-win-win.

    Sadly, the first home buyers who get the hand out in the first place will be left holding the bag on the extra loan they can now afford with a slightly higher deposit…

  • kampua on 10/05/2017 - 18:53
    -2

    They should limit property ownership to 2 per person. Free market does not work, like how the government interferred with the gas market.

    • Kommyht on 10/05/2017 - 20:19
      +1

      2 bank accounts and 2 shares per person too. Damn investors reaping multiple things

      • kampua on 10/05/2017 - 21:07

        Bank accounts and shares are completely different things to housing. You can have as many bank accounbts you want as uit does not affect other people. And you can have as much shares as yolu want because it is not life's necessity.

        Imagine we all gather each evening auctioning for bread and each loaf costs $10,000.

        Housing is a necessity that everyone needs, and it only has limited supply. Allowing some rich fellows to hoard them just makes life hard for others.

        What about the gas companies export all gas supply oversea and leave our country with no gas?

        • Kommyht on 10/05/2017 - 23:28

          I see your point. Shares, savings/bank accounts, or any kind of investment that maakes money is in fact a neccessity - it'll be redundant if it didnt do its job otherwise.

          Living in a house is a necessity - the renter owning it because "gimme" is not if they're not in a financial position to do so. We all started at $0, and worked our way up. Very few investors have more than 1 property, so I doubt many are rich hoarders.

          Viewed through the current upward trend of rental, yeah its a a damn worry. The new bunch of apartments planned for the next 1-3 years can't come quickly enough I reckon. They may be pockets of air in the sky but the sky is literally the limit for housing people.

        • Fiximol on 11/05/2017 - 08:37

          What makes Australia (In particular Sydney Melbourne and Brisbane) so special that they need such extreme regulation that the US, UK or other developed countries don't?

    • Cluster on 11/05/2017 - 00:39

      People find a way to game the rules. In China some provinces limited couples to two properties, so the solution was for couples to file for divorce so they could buy another property. Two properties per person here just means parents will buy property in the name of their children.

      • Kommyht on 11/05/2017 - 08:57

        Couples in Aus can divorce as a way of avoiding stamp duty when transfering property ownership to another name. Not widely talked about- why draw attention to a useful loophole.

        Where theres a will and a savvy accountant, theres a way

  • tsunamisurfer on 10/05/2017 - 18:53
    +15

    Please note that the new measures proposed allow aspiring owners to :

    1) Contribute additional monies into their super (thereby taking advantage of the conts tax rate vs marginal tax rate).
    2) Earn returns (interest, dividends and capital gains) at 15%.
    3) Then when a suitable property is found, allow the superannuant to withdraw the amounts in 1) and 2) to go towards the deposit.

    It does not allow aspiring owners to withdraw their non-FHSSS super balances.

    This is an important difference.

    This is essentially a savings accelerator via reduction in tax, NOT a lump sum capital aggregator.

    • spackbace on 10/05/2017 - 20:59
      +1

      /thread :)

      Starting a post with incorrect info to ask a question is just plain stupid

      • iDroid on 10/05/2017 - 21:24

        I think you miss the point - this post is not about the 'super' it's about trying to solve an affordability problem by pushing more money at it which has the negative desired effect. ie, this will not help solve housing affordability one bit. It will almost certainly make it worse.

        • chartparker on 10/05/2017 - 21:40
          +1

          Situation: Homes are too expensive
          Solution: Give more money to more people
          New Situation: Homes get more expensive

        • spackbace on 10/05/2017 - 21:44

          But they're not putting money into it… People still put their own money into super, and then withdraw that same amount.

          How is the government reaching into their pocket?

        • chartparker on 10/05/2017 - 22:22

          @Spackbace: I have no idea. It played out better in my head, like this: https://xkcd.com/927/

          I'm definitely no economist

        • spackbace on 11/05/2017 - 00:54

          @nytrojen:

          I replied to OPs comment before yours FWIW :)

        • tsunamisurfer on 11/05/2017 - 12:08
          +1

          No I didn't miss the point, I'd even say I agree with you in principle, but just wanted to clarify that not all of your Super will be available (which your post suggested before it was edited).

          The FHSSS will have the same effect as the FHSA and the FHOG, it will empower more buyers with more buying power hence driving up prices more and making it harder to buy in general.

          Having said that the $30k cap on the scheme really reduces its impact to 'negligible' levels.

          Consider that the median house price (excluding Sydney as the outlier) is about $500k.

          Even if you are a couple and happen to save the max, you'll come out of it with potentially about $65k at the 3rd year (making some assumptions of small gains in Super).

          $65k over the $500k property isn't enough to avoid LMI. How much would the market have moved in those 3 years?

          This will only be able to help a small segment of the market, those of higher tax brackets and will have the means to save more and faster than the market.

          This is a token effort to help home buyers, it will have little effect, so you can rest easy.

        • iDroid on 11/05/2017 - 12:12

          @tsunamisurfer: Absolutely, my reply was to Spackbace. I appreciate your original clarification!

        • Miwee on 11/05/2017 - 12:57

          @tsunamisurfer: Agreed it will have little effect for first home buyers and housing prices due to the 30k cap. And that 30k is already theirs, what the FHB is getting is a tax benefit which I think is only about 3-4k if they put in 15k in the first year.

          If they put in 15k for 2 years then yeah it'll go up to 6-8k. Barely enough to cover inflation let alone minimal increases in house prices.

          Every little bit helps, but in the grand scheme of things, peanuts.

  • dcep on 10/05/2017 - 21:54

    You've got to fuel the bubble till it bursts. Happens all the time at any other corner on earth.

    • Fiximol on 11/05/2017 - 08:45
      +1

      Why do you call it a bubble? Which part of the supply or demand side appears to be artificially inflated? Is everyone buying beyond their means?

      • iDroid on 11/05/2017 - 17:09

        An asset bubble is trade in an asset at a price that strongly exceeds the asset's intrinsic value.

        It has nothing to do with being beyond one's means.

        It's called a bubble because assets typically return to their intrinsic value, hence the asset price inflates and then deflates. The larger the bubble (further from intrinsic value) typically the faster the deflation (POP)….

        So, unless CPI has increased at the same rate as house prices I'd speculate that there are strong signs of a bubble.

        House prices and CPI are not coupled in anyway: http://www.huffingtonpost.com.au/2017/03/20/this-chart-shows…

        You may be tempted to argue a supply/demand issue, but there is no evidence of a shortage, only a gap between what people want and what people can afford. There are plenty of houses to go around - or we'd be seeing tent cities everywhere.

        • Fiximol on 11/05/2017 - 19:14

          Previous housing crashes were founded on loose lending (us) and people borrowing beyond their means due to unsustainable economic growth (japan) or the location being undesirable (perth and detroit)

          Why would you expect any one of these would apply to Brisbane, Sydney or Melbourne? Has the San francisco market which was pushed up by silicon valley wages collapsed? No. The fact is that people are willing to pay a large premium for property in these desirable locations. The real estate market is trading on solid crediting as far as we can tell, especially since banks have learnt from the gfc (see list of suburbs where they don't lend to and size limitations etc.)

          If people can afford to pay their mortgage (e.g.have jobs, interest rates don't sky rocket) or the place doesnt become completely unattractive to live in (detroit) then there is absolutely no reason why the price would "crash".

        • iDroid on 12/05/2017 - 10:40

          @Fiximol: But you're just identifying some of the pins that have pricked some bubbles. Bubbles pop for many reasons and attempting to predict what will burst a bubble is never easy.

          As you mentioned, an interest rate hike could put a lot of pressure on borrowers. Here's my list of what I see.

          • Interest rates are at historical lows
          • House prices are historical highs
          • Household debt is at historical highs
          • House prices to GDP are at historical highs
          • Purchase price to income ratio is at historical highs
          • House prices have diverged a lot from their intrinsic value (opinion)
          • Incomes are not keeping up with real-estate prices

          There are a lot of precarious points there, anything could happen. Some (possibly all) of these points will return to their historical averages. Any one of those could spell disaster.

          Even a modest rise in interest rates could cause a crash.

          But even this doesn't need to happen. Just like tulips, if enough investors decide that it's time to exit the market (realise profits) this could even be enough to cause a cascade and crash.

          There's just so many possibilities that picking the right one and when it'll happen is not simple.

          If people can afford to pay their mortgage (e.g.have jobs, interest rates don't sky rocket) or the place doesnt become completely unattractive to live in (detroit) then there is absolutely no reason why the price would "crash".

          IMO, there's many many many more reasons than what you've listed. But even if there wasn't, some of those listed are likely to happen at some point (markets/economies work in cycles) to think it's going to stay as it is today would be naive.

          Given the current world climate even a war breaking out could have a devastating effect, even if it just reduced our trade opportunities and the flow on effects of that.

          Too many possibilities it hurts.

          But regardless, what could cause a bubble pop is another story. I think it's safe to say that we're in a property asset bubble or there's some other fundamental force at play that we've not identified. I don't buy the supply/demand argument as there are enough houses to go around (there is a high vacancy/un-occupancy rate in Australia - certainly not an indication of a shortage). There is a shortage of what people want for what they can afford - but that's not a shortage of housing.

        • Fiximol on 12/05/2017 - 11:12

          @iDroid: There is absolutely no reason why anything has to happen - Australia is on the higher end of housing to income ratio but is not the highest nor an outlier. Nor is the interest rate in Australia all that low compared to other countries: at 1.5% it is higher than most European countries, US, Canada, South Korea, Taiwan, Hong Kong and Japan (i.e. Asian developed countries except China) - there is clear precedence that it can go even lower in developed countries.

          I don't see any rapid mechanism by which house prices will drop dramatically over a short time short of a large unexpected shock. House prices don't drop on their own, there needs to be a mechanic by which they drop - and I have yet to see a feasible explanation for this short of a dramatic economic slow down forcing people to sell to reduce debt (or default on loans). San Francisco and Hong Kong has proven that house prices can stay buoyant even if just a proportion of your population can afford to own housing - it sucks for the low/mid income earners and maybe the government wants to do something about it, but it is by no means proof that what Brisbane, Sydney and Melbourne are experiencing is a bubble so long as the economic base in these cities is stable (unlike Perth, which was heavily reliant on mining).

          Basically, I am not identifying any issues which signifies a bubble - prices have risen dramatically, but they are not inflated and is comparable to global cities of a similar level. Why do things have to go back to a 'historical average' when the whole world is changing? The fact is that the best thing they can do to improve the house to income ratio is not to reduce house price but to increase income, which is reliant on a growing economy.

        • iDroid on 13/05/2017 - 15:03

          @Fiximol: Those income ratios do not take into consideration personal debt levels - income on its own is not overly meaningful in this context, disposable income more so.

          Regardless of our interest rate comparison with other countries it would be unrealistic to assume that interest rates can stay low forever.

          The mechanism by which an asset bubble pops is never obvious and typically "can't be seen" until it happens.

          I agree, the system will require a shock of some sort, it's not just going to magically deflate unless something changes.

          So pulling from my list above, if any of these happen:

          • Interest rates have a moderate increase
          • Significant enough households begin to not meet their debt obligations
          • Relative incomes decrease enough
          • Significant enough economic slowdown (we're VERY dependant on our export trade - and it's out of our hands)
          • Supply increases significantly

          These could easily trigger a dramatic decrease over a short time.

          I'd speculate that there's a significant number of other things that can be added to that list above.

          San Francisco and Hong Kong are no more proof than Australia is. If anything they're in equally poor position.

          but it is by no means proof that what Brisbane, Sydney and Melbourne are experiencing is a bubble so long as the economic base in these cities is stable (unlike Perth, which was heavily reliant on mining).

          Or any of the things I list above happen.

          The fact is that the best thing they can do to improve the house to income ratio is not to reduce house price but to increase income, which is reliant on a growing economy.

          Do you really believe that increasing income would help? Really? The evidence strongly suggests that asset prices would simply increase.

          Now, if we could increase income AND increase interest rates (to stop that additional income going to speculative assets) then maybe. But it's unlikely to turn out that simple.

          On the converse, what is the fundamental thing that has increased house prices over the last 10 years? I see only speculative investment coupled with an increase in purchasing power (cheap debt) - this alone spells bubble to me.

        • Fiximol on 13/05/2017 - 16:47
          +1

          @iDroid: I don't have anything else to add at this point. We will have to wait and see.

          Good talk, though! Some interesting points.

        • iDroid on 13/05/2017 - 18:53
          +1

          @Fiximol: Indeed :), it's an interesting problem. Take care.

      • dcep on 13/05/2017 - 02:24
        +1

        Why do you call it a bubble?
        why do you not call it a bubble? have you seen a bubble inflating before it burst? do you call ireland a bubble in 1997 ? or you only call it bubble when it finally burst in 2007 with property prices went down well over 60% when the dusts settled.

        Which part of the supply or demand side appears to be artificially inflated?
        brisbane alone, within 5km cbd ring another 13000 units releasing into market by Sept.
        yeah, keep saying it's under control and keep on believing there is no oversupply when developers failed to achieve pre-sales and abandoned projects (yes, this is already happening in brisbane but don't worry there will be a dominoes effect triggers shocks throughout entire housing market)

        Is everyone buying beyond their means?
        1 in 5 household exp. mortgage stress even with a mere 1% rates increase.
        and what's the current interest rates? try another +2%. Oh wait, year 2000 was 17% ?
        I bet someones gonna say this time it'll be different and interest rates will stay forever at 4%.
        Same person who thinks this time it will be different that property prices will only go up.

        • Fiximol on 13/05/2017 - 16:51

          Let's assume you are correct.

          What do you suggest the correct sequence of intervention would be?

  • retiredfeline on 10/05/2017 - 22:02
    +2

    Are grammar so bad nowadays? :)

    • iDroid on 11/05/2017 - 11:24

      In case you're not aware, collective nouns such as government can be considered either singular or plural depending on the context. I've change the title to appease though :)

      https://www.englishclub.com/grammar/subject-verb-agreement-c…

      • retiredfeline on 11/05/2017 - 11:55

        It smells more like you initially wrote "Are they" and then replaced "they" with "our government". I've done that sort of thing too. Also * changed. :)

        • iDroid on 11/05/2017 - 12:09

          :), I see it could look like that, but I'm not sure I did in this instance. I often refer to our government as plural, it seems natural to me, but it seems it's not common :)

          I too make those type of mistakes often though.

  • Cluster on 11/05/2017 - 00:47

    The solution to the housing bubble:

    1. Convince people to buy outside of the major capital cities. There are many affordable properties out there but people are not willing to compromise. I understand that almost everyone wants to live in inner urban areas but it's simply not possible for everyone to fit at reasonable prices.

    2. Dual story properties as standard on small blocks of land. Say, 150m2 or smaller. That will open up more land for development. It's not the building that's expensive, it's the land.

    3. The hard part: make Australians believe it's worthwhile to invest in businesses, exporters, infrastructure, rather than piling all their money into housing.

    Letting some people have access to even more money for housing is the absolute worst thing we can do for everyone, except existing investors.

    • spackbace on 11/05/2017 - 00:52
      +2

      How are they having access to even more money? It's just their own money they've voluntarily contributed to super!

      Does no one actually read the government's plan except for a minority of people in this thread?!

      • iDroid on 11/05/2017 - 10:44

        Right, so there's two possibilities here.

        1) There is either no "even more money"; and This will have zero effect.
        2) There is more money and it will have a negative effect (increase house prices)

        If the government allows an avenue (regardless of how it's orchestrated) to allow funds to be directed towards housing deposits then there is more money pushed into housing.

        But even just the tax benefit (from contributing additional monies into their super which can be used for a deposit) takes tax money and puts it into housing no?

        This is all somewhat moot - we're discussing specific details that are not overly important. The idea behind this thread is that these attempts by the government to help housing affordability seems so naive that it hurts and IMO will do more harm than good. Even if the effect is small, it's still in the wrong direction and constitutes yet another failure on their behalf.

        • spackbace on 11/05/2017 - 10:48

          How is it any different to a bank advertising a high interest loan for the purpose of saving for a house deposit?

          It's not like thousands are going to take up the government's offer, but they want to appear like they're doing something amazing.

          Your argument is completely moot because it's based on ignorance of the actual proposal.

          I'll say it again, the government is putting zero money into this scheme. It will have zero effect on house prices.

        • iDroid on 11/05/2017 - 11:00
          +1

          @Spackbace:

          How is it any different to a bank advertising a high interest loan for the purpose of saving for a house deposit?

          It's not, that too would assist in increasing said asset prices and if our government pushed for this as a remedy for housing affordability then I'd be equally displeased :)

          The difference is that the banks don't operate on tax dollars unlike the government.

          It's not like thousands are going to take up the government's offer, but they want to appear like they're doing something amazing.

          Agreed, so it will not have a huge effect (ie this will not make housing more affordable). The small net effect is likely to be increased house prices. Which is my point.

          Your argument is completely moot because it's based on ignorance of the actual proposal.

          How? I disagree. The specifics of the "actual proposal" are not important, the net result is. What aspect of my ignorance makes my argument moot? I understand I'm ignorant of lots of things and I don't pretend to be an expert. But I do have my opinion based on some level of anecdotal experience (as worthless as that may be) and some rudimentary economics education.

          I'll say it again, the government is putting zero money into this scheme. It will have zero effect on house prices.

          I'll say it again also. If money can be funnelled into super (ie, less tax paid) that can then be used for a house deposit, then I say 100% there is tax money going to housing that would not have gone there otherwise. It's pretty clear to me.

          If there is no extra money being made available then what does this scheme do?

    • retiredfeline on 11/05/2017 - 07:50

      The problem with 1 is that the job and career prospects are in the big cities. Per job there are more people chasing it outside of the cities. But some people have done it. https://www.theguardian.com/australia-news/2017/may/07/im-no…

      The problem with 3 is that those investments are all flat, world wide, and rents are not static either, but rising with house prices.

  • Peck on 13/05/2017 - 16:55
    +1

    Re:Affordable Housing (Buying/renting).
    I suggest people watch http://www.abc.net.au/foreign/content/2016/s4664559.htm
    In Japan rents and home prices rise very little and everyone is very happy. Not much room there for Developers to get rich on the Government spending on infrastructure. Infrastructure, which, as I have mentioned elsewhere, should be financed by value capture (IE those who benefit, mainly developers - pay!), and not by selling off government assets.

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