Housing subsidy pushes prices up

[freediver]

All subsidies end up increasing the price of the product they are supposed to make more affordable. The first home owner's grant is no exception to this. Such schemes are universally discouraged by economists, yet keep getting promoted by people who have no understanding of economics and who refuse to learn the lessons of history. They keep rearing their ugly head, because they sound good to those who do not understand their true impact. The frequency with which subsidies are promoted in Australian politics is the strongest argument in favour of more economics in high school education.

In addition, they are bad from an economic perspective because they drive inflation up. They are also a waste of taxpayer funds. They take money from those who earn it and give it away on a fairly arbitrary basis. For example, houses are not necessarily a better form of investment than shares, yet the federal government's grant takes money from those who invest in Australia's industrial capital and gives it to those who invest in unproductive assets. In doing so a lot of the money is wasted on bureaucracy.

Any government expenditure needs to be justified with more than just 'wouldn't it be nice if we gave these people a pile of cash...' The first home owner's grant, and most other subsidies fail this test miserably. The only situation where subsidies may make sense from an economic perspective is where they internalise a positive externality.

The $7000 grant increased the number of people buying houses and increased the house price. The grant is a huge burden on taxpayers and the price increase it caused swallowed up a significant amount of the grant, while making it even harder for those who don't have access to it to purchase a house. Economic theory predicts this. Experience backs the theory up. I have read many statements from economists in The Australian and elsewhere saying the same thing. I have not read a single contrary claim, except here. To anyone who knows what they are talking about, it is a no-brainer. Anyone who claims otherwise is either lying, or hasn't studied and doesn't understand economics. I can only imagine it based based on the old 'Howard is a good economic manager' mantra, therefor anything he does cannot be bad for the economy.

[boxy]

First home buyers subsidies seem to be one of the best targeted ones out there. It allows young people to get into the housing market for the first time, and use their income to gain some capital, instead of paying it out to investment home owners in rent. Sure, it will increase the prices slightly overall, but make it easier/cheaper for the targeted "investors" to get in.

[freediver]

As far as handouts go, I think it is a poor choice. It's not like they are 'in need'. And we don't need any more handouts anyway. It would have been better spent on productive infrastructure like ports, roads, cable etc.

[Jovial Monk]

Howard's doubling of the FHBG after the GST was introduced led to the huge house price bubble that prevented a whole generation from buying their own home.

If the government wants people to own their own homes it should have houses built, like the Housing Trust did in SA, to rent or sell at discounted prices. These won't be McMansions and that is no bad thing!

[mantra.]

These won't be McMansions and that is no bad thing!

McMansions are so cheap at the moment. Those who purchased them under the coalition's housing bubble as a status symbol are now selling them for nearly half of the original purchase price.

Rudd's increase of the first home owner's grant isn't having the effect of inflating house prices as it did under the coalition. First home owners are now being given the third degree by the banks and need to produce a reasonable deposit and a steady income before their loans can even be considered. Real estate has now dropped to a more realistic price also.

This is a good thing - but it's come a decade too late.

[Jovial Monk]

Yeah, good that houseprices are coming down. Rudd was safe to offer the subsidies: inflation not a problem in a deep recession. I fear we will be going into another Depression, worse than the recessions under Howard (as Treasurer) and Keating (as PM.)

[cynik]

"All subsidies end up increasing the price of the product they are supposed to make more affordable. "

You should go find your economics lecturer and smash him in the face.

Let us start with the fundamentals. Supply and demand. Subsidies are incentives to produce a given thing. So, the government pays the costs, allowing more of the thing to be produced for the same outlay by the producer. Therefore supply increases. If demand stays constant, price GOES DOWN.

OK? That is the rule. It has even been called the fourth law of economics. If you subsidize something, you get more of it. The most striking evidence to support the rule is single mothers.

It is absolutely not true at all that prices increase. Now, it MAY be true that, for some people, the article will be less AFFORDABLE. But that is very. very different to suggesting the price will increase. The only way the item will become less AFFORDABLE is when taxes (required to pay the subsidy) rise so high that nobody has any money left to buy the product.

BUT..... to equate this with a rise in price for the product is very, very dangerous thinking. It ignores the wider world. See, if you do not pay taxes to the government subsidizing the product, the product is CHEAPER. It's price drops. Due to supply and demand theory, as outlined above.

Hence, when a government taxes its people into the ground in order to pay the costs of certain industries operating expenses, foreign buyers benefit enormously. They are able to get product for less than the real market price, because the government of the socialist state has decided to tax their population in order to subsidize the price of that product.

In this scenario, which is very common in the world today, very cheap products are exported by a tiny minority to foreign buyers, and the majority work like (AS) slaves in order to stimulate the "business".

Exports, exports, exports..... Balance of payments! We must export more!

We need to tax more, to STIMULATE THE ECONOMY!

These new ways to spend tax revenue are all lexical variations on the very same economic model. The idea is that you help a minority export by taxing the majority.

Now banking and the auto industry are the new darlings of this trend, globally, but in Australia you will find the very same pattern if you choose to look. The pattern is this: TAKE MONEY FROM FUTURE GENERATIONS OF TAXPAYERS, AND GIVE IT TO YOUR FRIENDS AND SPONSORS IN THE FORM OF SUBSIDIES.

The result is that you drive your people into poverty and you make things cheaper for people living in rich, sensible, democratic countries.

Like Switzerland.

I can't tell you guys how fucking excellent it is to live in a country that does not cut its own throat at election time. It seems, at times, as though the rest of the world is working to support us here. The chinese slaves work to export all sorts of knick knacks. Farmers in the colonies export us cheap, cheap food that their own populations can't afford anymore. Even the Americans have been sending us cheap, cheap money for years.

How? Because they are all stealing from their people in order to make a sale in the international marketplace. BALANCE OF PAYMENTS! EXPORT EXPORT EXPORT!

Phhht. The english speaking world is turning so fucking dumb, figure it has got to be the TV. But it is a special sort of stupid. It is a cruel, degrading stupidity. People are educated to read, but then they are given a choice between madness and nasty lies. They are forced to choose between believing nonsense from the idiot left, and propaganda from the corrupt right. That is what western representative democracy has become. Politics has become a game whereby lies compete so that one of two brokerage houses can give the tax revenue of future generations to their corporate friends. These corporate sponsors don't even pay tax in the countries they control, and the people are forced to sell their children and grandchildren into debt slavery because they have no other options on the table. In truth, their children are sold into debt slavery as they watch. That is what makes the system so cruel.

Stick to supply and demand, freediver. Stick with the fundamentals, and do not get caught up in the University jargon. I have sat at tables recently with some very, very important (well paid) lawyers and bankers, and the conversation regarding the economic problems in the world never got beyond supply and demand economics. Supply and demand, and reason, will take you much further towards understanding the world than talking to people who earn 3 pesos a day teaching socialism at some university.

[Jovial Monk]

WRONG. Subsidies like the FHBG subsidise not supply but DEMAND. More demand, same supply, prices go UP!

[mantra.]

I agree with the supply and demand theory as explained by Cynik. House prices are low at the moment and that's because of the global downturn and the fact that borrowing has become so much harder and the demand, particularly by investors (when money was easy to get) has lessened. This has occurred regardless of Federal Labor's generous first home owner's package which pushed prices up when the Coalition introduced it for a short period. At the time of these inflated property prices - the coalition had cut the capital gains tax in half, enabled foreign investors to purchase homes free of capital gains tax and of course the very generous tax rebates for property investment were well established. When the state government introduced a hefty land tax on investment properties and the coalition offered a generous superannuation investment scheme for the elite - investment properties were sold off which created less demand.

Hence, when a government taxes its people into the ground in order to pay the costs of certain industries operating expenses, foreign buyers benefit enormously. They are able to get product for less than the real market price, because the government of the socialist state has decided to tax their population in order to subsidize the price of that product.

That is obvious and one of the reasons the population hates politicians with a vengeance - but I wouldn't call it socialism, but capitalism at its extreme. Many of these subsidised products aren't essential as even cheaper alternatives (without subsidies) could be found easily enough.

The result is that you drive your people into poverty and you make things cheaper for people living in rich, sensible, democratic countries.

Like Switzerland.

Sounds like a desirable place to live. No wonder the elite head there in droves.

[Jovial Monk]

Yeah lovely place switzerland, still living off jewish gold entrusted to its care b4 WWII. Also fucking discriminatory in who it allows to migrate/become a citizen there.

Taxing us into the ground? Hordes of slaves? I want what the kitchen sinik is smoking!