Economists respond to minister insisting house prices shouldn't fall
Economists respond to minister insisting house prices shouldn't fall
Last month, Housing Minister Clare O'Neil told triple j that the government wasn't trying to bring down house prices. The interview found a new life online this week, so we asked the experts what they think.
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Well, unfortunately they're right. House prices, thanks to consecutive governments have been allowed to become a central pillar of our economy. If we allow that enormous private debt bruden to become unstable, by a drastic cut to house prices say, then we'll start resembling the third rate economy Keating warned about pretty bloody quickly.
I still don't agree that its only a supply issue, the demand levers are stacked to ratchet prices one way that is a key contributor to the soaring prices. We ignore the demand side, we ignore half the problems in the housing system.
On the supply side, if they're really interested in fixing supply the government are gona have to look at a more directive approach to the market. Maybe Chalmers should lend O'Neil his copy of Mission Economy by Mariana Mazzacato.
I cannot imagine the downsides of making housing more affordable outweigh the benefits
It depends on what time scale you're looking at. It would be a short/mid term catastrophe that's necessary in the long term.
Personally I don't see how increasing the funding towards building public housing could cause any "catastrophic" damage, short or long term, by any meaningful metric
So your first comment pointed me in a different much wider direction. Reducing prices of houses now, and by any means, could be catastrophic. Too many peoples future wealth is tied up in their mortgages to banks, and banks themselves are highly reliant on expected return.
Building public housing is a more acute solution to your first comment. I don't know why Labor haven't begun a public housing commission. The only reason i can think is the industry hasn't had a 'true, start to finish' public housing commission for a long time.
Your talking thousands of new government employees, long term supply contracts, limited and possibly 'popularly' rejected house designs, not to mention the initial outlays to buy and prepare the land and all those costs.
A Public Housing Commission could be a long term project, but you couldn't start works tomorrow, it would take a bazooka to the budget (not saying Australia couldn'thandle it, but it'd be a hard sell), and you have to judge whether the wider population of voting Australia is ready to commit to such an ideologically different capital project structure.
Plus all the stuff and problems i've missed and not understood properly.
I'm not sure Australians, en masse, would be ready to go along with a project like that, and as individuals there would be a plethora of reasons for dissent a government would ne required to at least attempt to address.
You are right that too much capital is tied up in Real Estate. This is a sign of an economy stagnating.
That capital should be invested in productive industries like manufacturing.
I would like to point out that public housing will pay for itself in economic benefits.
I think politicians are out of touch with the housing crisis mostly due to them being much wealthier and much more insulated from the housing crisis compared to young Australians.
I would argue that more radical methods such as taxing vacant residential properties at the rate of the area's typical rent and taxing short term rentals at a rate that makes them as profitable or even less profitable than long term rentals are good ideas. I think the possible economic downsides to policies like this pale in comparison to the economic and social benefits that will arise from young people being able to afford to live.
Idk how old you are but I am quite young and within my social circles there is so much unrest about this. People want to move out of their parents houses, be independent and start families. The fact that the government has failed to make these things economically possible is pushing my peers to at best radical and at worst anti-democratic and authoritarian political beliefs. And honestly I might be right there with them. Part of me would be willing to part with personal liberties if it meant I could afford to eat, live and have free time.
Tldr: Its all a bit farked, work needs doing lets all pitch in.
I would like to point out that public housing will pay for itself in economic benefits.
I think you're right, but only in time. Problem is it'd be a huge upfront and ongoing cost until a future payoff. And this assumes all of the dividends from a public housing commission can be counted. Intangible benefits are hard to count..
A problem with the old economic system, is the benefits of these things couldn't be quantified. The neoliberal economic swing came and convinced self-regarding people, which we all are, of the tangible benefits of the new system.
That Friedman-esque system is now the old system. It greatly enriched two to three generations, and created a system of non-productive highly valuable assets that can be borrowed against. This in itself isn't too bad, if thats all it did.
Now wages are continually capped, for many reasons all leading to inflation. I'm not sure whether i find that a legitimate worry anymore. When inflation is more acceptable to occur everywhere else in the economy but wages, that tells me the reserve bank doesn't have the tools it needs to do the job its given.
Maybe a limited ability for the RBA to vary broad based taxes is a better system than interest rates. If you want radical that would be radical.
Taxing vacant residential properties might be cathartic, but doesn't fix any of the driving issues. The Airbnb taxes are probably needed for certain hotspots, but again its not really a radical thing to do. Both suggestions chop around the sides of the housing issue in the country.
The inequality is real, the generational divide is great, and if allowed to continue will pull the classes of our so called classless society further apart.
In this environment the young have no choice but to get radical. What has happened to wages in comparisson to everything else over the last ~40 years should be considered theft. From the wage workers and wealth creators, to the rentier class.
Personal liberties are hard, because we all have less than we assume. The State often doesn't know or care what we do, and doesn't assert its sweeping powers very often and thats a good thing. Codifying rights could lead to more problems, and costs than exlecting people to act like adults.
Libertarians are generally among the most foolish people i've ever known, one persons rights is anothers responsibilities, libertarians want all the rights without the responsibilities of looking after everykne elses rights.
Capitalism needs a change, and thats going to mean active governance (not necessarily more expensive), and probably more radical populist government policies.
The authoritarian populists would be a mistake, they will only favour their base 'fixing' the economy like a wrestling match, instead of fixing it like a repair.
But again is the general population willing for this? I don't think so yet.
Best thing young people can do is join and become an active member in a local political branch. Help set party direction. Demand change through the structures that are already in place ossifying because we've been directed to fend only our own wolves at the door that we've forgotten, humans are pack animals to.
Where the hell did i stop talking about housing?..... my bad.
The wave theft is crazy, I'm lucky enough to work for myself and pay myself a good wage better then what i would be paid if I worked for a company.
In my industry the standard charge out rate is 140 an hour excluding gst.
I can afford to pay myself 40 hours at 60 dollars an hour and only physically do 28 hours work and the company (i own) will still make a small profit.
Every hour after that is profit to the company.
Most businesses work out the same at different scales, they say your wage costs double what you earn which is on average true. But it neglects the tax break companies get allowing them to effectively make 2 days of free money from your 40 hour work week.
I think the system needs jigging for sure.
Small businesses cant really afford a change but large companies all that free money for labour compounds very quickly.
I've never been a business owner, but i've heard about the extra costs, usually from bosses complaints about their inability to pay more.
Interestingly, i've never heard about the tax break you mention.
I's under the impression payroll tax, and insurance were the biggest extra costs to employing people. If theres a general tax break to those, then i have witnessed some rather convincing crocodile tears in my time.
Yeah so effectively everything that is paid to employees is considered an expense to business.
So for simple numbers
Bring in 10k through work,
Pay 5k in wages and then pay tax on the other 5k Small businesses is Australia pay 25 percent so you then owe 1250 in tax
Not pay tax on the 10k then make wages out of the remaining 7500
Oh right, i see what you mean. Its avoiding double taxation of the same monies.
Because the employees pay is taxed also, if the tax office were to tax the whole $10,000 it would mean they effectively tax the same set of money twice. In this example that $5000 of employee wages would be taxed first as business tax, then as income tax.
Yeah so effectively everything that is paid to employees is considered an expense to business.
So for simple numbers
Bring in 10k through work,
Pay 5k in wages and then pay tax on the other 5k Small businesses is Australia pay 25 percent so you then owe 1250 in tax
Not pay tax on the 10k then make wages out of the remaining 7500
You're right about that. We need to build more public housing. But I don't think that will actually bring down house prices for a long time. We won't build them fast enough in the areas it's needed.
One of the big reasons this is a global issue is because it's partly driven by wealth inequality. As long as there are enough people with enough money (or borrowing capacity) to keep prices high, it won't change. This is one of the demand side factors that goes largely undiscussed in the mainstream media. We need serious tax reform, and that's not going to happen anytime soon.
We are completely unable to have a mature discussion about the concept of property rights too (look at how quickly the squat protest in Brunswick today, staged by PurplePingers, was shut down). 3 potential homes in Brunswick that have been vacant for 15 years. I'm paying 670 bucks a week to live in a tiny place in Brunswick that would have cost nothing to rent in my parents time. House is valued at over a million dollars despite the stumps being fucked, brick work falling apart. It will be knocked down because the value is in the land.
The owner of the property takes nearly half the money I earn as an engineer, while doing nothing but granting access to a scarce resource. I spent my time making things that have value and people use. Where's the fairness in that?
People shouldn't have to worry so much about finding somewhere to live. It's supposed to be a simple foundation on which you can build a life, a community, a career, a family. We are going to end up killing any drive for innovation because the rewards are diminishing and being stolen by people who lucked out by being born in better situations.
Couldn't have said it better myself.
We are going to end up killing any drive for innovation because the rewards are diminishing and being stolen by people who lucked out by being born in better situations.
This is going to become an increasingly correct sentiment. And as you say, at its core, the issue is how we're dividing land ownership rights.
The great thing about Australia, is everyone knows no-one has an inalienable right to any piece of land. Whehther its been demonstrated by eminent domain from the government, the knowledge that it all rests in this amorphous thing called 'the crown', or, happily, the very active and oft discussed indigenous land rights.
I say 'happily' because in this case the often strained discussions and legal cases around an Aboriginal Nation asserting a claim serves the whole community to remind us that there is always other stakeholders in the land we might have passing control over, whereas eminent domain isn't used widely, or as often, so people tend to forget about it.