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Australian Economics
- Thread starter 1eyedtiger
- Start date
a pretty standard Libs budget really. sink the boot into poor, unemployed, disabled and black. But 50m a year on school chaplains? I really struggle to swallow that. im a teacher.
Quite some time ago, I posted on how there was a growing Australian generation of first home buyers that were being shut out of the market by both Australian and overseas investers.
At the time of the posting, I was assured that the federal government had secure processes in place to ensure that foreign investment did not crowd out first Australian homebuyers.
Lo and behold, it comes out that our Reserve authorities now recognise that the foreign investment laws have been poorly policed, investors are crowding out first homebuyers, and that Australia now has an entrenched generational problem of first homebuyers not being able to get into the market, or getting in but at unsustainable repayments.
Shame the horse has bolted!
Now it will take a strong government to put this right.
Don't fancy our current options.
At the time of the posting, I was assured that the federal government had secure processes in place to ensure that foreign investment did not crowd out first Australian homebuyers.
Lo and behold, it comes out that our Reserve authorities now recognise that the foreign investment laws have been poorly policed, investors are crowding out first homebuyers, and that Australia now has an entrenched generational problem of first homebuyers not being able to get into the market, or getting in but at unsustainable repayments.
Shame the horse has bolted!
Now it will take a strong government to put this right.
Don't fancy our current options.
Absolutely agree. Both major parties have been complicit in this and I can't see it ever being fixed. Most Australian politicians (and those who lobby/donate to both parties) have a vested interest in high property prices (see http://www.macrobusiness.com.au/2014/08/aussie-politicians-300m-property-portfolio/)Phantom said:
Unfortunately those who have the most to loose with this (i.e. young people) have not had not had the knowledge or confidence to speak out until now, but I think it is too late. We have dug ourselves a hole. I see a few options from here and none of them are pretty:
1. Governments, media and other influential people continue to foster high price growth (greater than inflation, etc). Result = huge inequality; no social mobility; ghettos filled with crime and poverty; a loss of what national identity we still have.
2. Same as #1, except a credit crunch hits and prices plummet sharply. Result = everyone highly exposed to property is in trouble and the economy (which is reliant on home loans) is stuffed.
3. Governments etc see past their vested interests and allow prices to correct. Result = Investors burnt, banks angry, bank shareholders angry, recent first home buyers still struggling with huge debt, government voted out.
martyshire said:
A recent RBA study was done on house prices relative to household income. 40 years ago average house prices were approx 3 times the average houslehold annual income, now they are over 7 times the average household annual income. A big issue for me is negative gearing - I am positive that a future governement will either scrap it or limit it. IMO it is the single biggest driver of price increases. And, it adds nothing but "paper" wealth to already well-off individuals and helps to price young people out of the market. It doesn't add anything to the economy in terms of jobs. I agree with the below writer on the topic.
http://www.crikey.com.au/2014/04/14/chop-negative-gearing-and-theres-savings-for-buyers-and-the-budget/
Phantom said:
No mention of negative gearing?
http://www.smh.com.au/federal-politics/political-news/house-prices-negative-gearing-a-bigger-problem-than-chinese-investment-20140930-10o8e0.html
40% of all housing loans are for investment properties. You do the maths Phanto.
Of course it's always easier to blame the Chinese.
While I agree that it should be scrapped, and that it puts upward pressure on housing prices, you can't look past interest rates for the biggest factor on high property prices. It is the low interest rates (set way below the likely market rate) set by the RBA and other central banks around the world that cause huge property price bubbles.JAM said:
There are a lot of theories about housing price bubbles and what causes them. Two have been mentioned , low interest rates and negative gearing, and I am sure they have major influence. Some OECD countries have mortgage interest deductions for main dwelling as well and it would interesting to see whether those countries have enormous housing bubbles.
Pre GFC I would have thought that one of the biggest influences in the US was just the availability of credit , basically the mortgage industry was stuffing credit down the throats of consumers. Low interest rates will influence housing prices for sure but it won't help if the banks are not lending.
I am sure there is lots of research on this but I would suspect it is more complex than negative gearing and low interest rates. It is probably a combination of low interest rates, credit availability, negative gearing, foreign buyers in the market, availability of housing stock and just the state of the economy.
In theory australia has rules limiting foreign buyers, certainly foreign non resident buyers are not meant to be able to buy anything but new dwellings as I understand it. The issue is that the FIRB hasn't got the teeth or the resources to monitor it properly.
Pre GFC I would have thought that one of the biggest influences in the US was just the availability of credit , basically the mortgage industry was stuffing credit down the throats of consumers. Low interest rates will influence housing prices for sure but it won't help if the banks are not lending.
I am sure there is lots of research on this but I would suspect it is more complex than negative gearing and low interest rates. It is probably a combination of low interest rates, credit availability, negative gearing, foreign buyers in the market, availability of housing stock and just the state of the economy.
In theory australia has rules limiting foreign buyers, certainly foreign non resident buyers are not meant to be able to buy anything but new dwellings as I understand it. The issue is that the FIRB hasn't got the teeth or the resources to monitor it properly.
I agree that you have mentioned the most significant factors, but you can add to that list:Sintiger said:
- huge population growth
- zoning/land release decisions
- high building costs
- banks' preference to lend for housing rather than businesses/innovation
- a culture of property investment (fostered by investors making lots of easy money in recent decades and all their peers wanting the same)
and, as a result of the two points above:
- many average Joe investors thinking that the terms 'investment' and 'property investment' are they same thing, or alternatively think, "well I'm not leaving cash under my mattress...I have to invest in something..."
I know several international students who are applying for permanent residency and a couple of past students that have recently obtained permanent residency. Most of them plan to get 'substantial help' from their families to buy a house...an existing house. Reading between the lines, their non-resident parents are flying out to compete at auctions with the aim of diversifying their wealth. Officially the student is just buying himself a house, so nothing to see here.Sintiger said:
There's still a generational perception that property can never lose, I fear a lot of people are about to get the shock of a lifetime.
bullus_hit said:
Like all commodities, there will be pricing readjustments from time to time.
The ones who will cop it are those who cannot withstand those short term adjustments.
For others, it will be a fresh opportunity to buy.
But for first home buyers, that short term adjustment will need to be substantial to allow them in.
History tells us that the one's who usually benefit from these short term adjustments are old established cashed-up families.
Phantom said:
Surely it is a bit different these days (as opposed to, for example, the Great Depression) because of the huge amounts of debt that many people have. The ones that will be able to take advantage of it will be the people with lots of equity/cash and/or not much mortgage debt.
I think these sorts of named, one-off taxes seem a bit contrived, whether it is a flood levy, conflict tax or whatever. It's not like the federal budget is executed perfectly as planned anyway and that money for X expense necessarily comes from revenue Y. It's all coming out of the same pie. I wish governments of both flavour would stop trying to placate backlashes, just tax us what we can afford to pay and spend it wisely. If they are not already taxing us enough then either:K3 said:
(1) they should be,
(2) we cannot afford to and therefore shouldn't go to war, or
(3) we have to take the money from something 'less important'.
The problem with this line of thinking is that is only focuses on the effects that are seen. It is very easy for protectionists to make effective yet fallacious arguments. "Yes, wonderful, this money is clearly keeping people employed, isn't it obviously a good outcome? Would not these people be impoverished and the economy worse off hadn't the government supported such vital industry? Aren't the workers better off because now they have jobs".Brodders17 said:
These arguments have been used non-stop for centuries, and unfortunately the protectionist arguments such as the above have won over the Liberty arguments, because it appears so obvious that the answer to the above questions is "YES!". When in fact the answer to all the questions is "NO!". It is far easier to show the derangements that must accompany avoiding the subsidy, than the arrangements that must follow avoiding the subsidy. However both from the perspective of utility and justice, such protectionism is deleterious to the well being of all people.
Let me demonstrate this, and then frame the question in terms of justice and see what the obvious answer becomes.
While spending $25 million keeps 2000 people employed, where does the money come from? It comes from tax payers. These tax payers now have less money to spend and invest in whatever capacity they deem fit. So now all the other industries within the economy suffer by the reduction in demand for their products. With the money of which she is no longer deprived by taxation, the shoe-maker will dress better and give employment to the tailor. The tailor will more frequently renew her shoes and give employment to the shoe maker; and the same thing happens in all departments of trade. Workers in these other industries will lose their jobs, and new jobs will not be created. The tax payers suffer, because their material well being has been reduced. Instead of the money being spent on consumer goods they want, or invested to increase the productive capacity of the products they want, the money has been given to a company that produces products they deemed inferior to their other choices. Tax payers are also worse off by virtue of the administrative costs of instituting the subsidy.
Yes the 2000 people would be out of work, but this situation would not last indefinitely, as the $25 million spent by tax payers would have provided other opportunities for employment. Yes it might be difficult to find employment that doesn't effect their lifestyle, but what of the other workers who are out of work and/or the people that would have found newly created jobs.
Now we can see how the question of justice comes into play. Clearly, forcibly taking money from people to redistribute to SPC is an injustice. You will raise the question of the social obligation of tax payers. What of the social obligation to the unseen workers who will now lose their jobs, or the people that won't benefit from newly created jobs? What of the social obligation to allow people the freedom to make choices in their lives. If people were asked if they support a government policy that they will personally profit from, but will cause injury to others (i.e. an unjust policy), the vast majority of people would say "NO!". However (ignoring the fact that they ultimately won't profit from it) we aren't asked this question, we have been fooled by the fallacious arguments of the protectionists (i.e. the fat cat capitalists who scream bloody murder at being subjected to competition). We think we are doing ourselves and others good when we approve of the policy of subsidy, when we in fact do the exact opposite!
Now it appears that a new argument has arisen regarding the utility of subsidy policy; we will save money on welfare by spending on subsidy. Ignoring the injustice of both welfare and subsidy, let's stick to the question of utility.
Again we need to look at what is not seen. Yes you might save money on welfare for the SPC employees, but what about the workers in the other industries that will be layed off or the people that would have found newly created jobs that now do not have them. Add in the costs of the administration of the subsidy, and the fact that at least some of the 2000 SPC employees would have found work relatively quickly, and it appears obvious to me that even with the policy of welfare, the policy of subsidy does not increase overall utility. The question of justice is still to be addressed by those who argue for subsidy in this way.
