Monday 13 August 2007

ALP to push up rent prices

Let's see. The Australian Labor Party has announced that it will have a petrol watchdog in order to ensure there's no collusion. As Jimmy Carter found in the United States the effect of this type of policy was to push prices up and artificially create fuel shortages for everybody. The ALP has also announced policies to monitor the prices of groceries and child care.

Now they've rolled out a policy to spend even more on providing housing to those at the bottom end of the scale.
The Federal Opposition has announced a new scheme that it says would mean 50,000 low to middle-income families get new housing and pay rent that is 20 per cent below the market rate.

Labor housing spokeswoman Tanya Plibersek says $60,000 tax breaks will be available for big investors who agree to build new rental accommodation and then charge tenants the low rental rate.

The scheme would be carried out in conjunction with state governments, who would provide an extra $2,000 a year to the investors.

Ms Plibersek says the investors would have to agree to take tenants who can show that they have been paying more than 30 per cent of their household income on rent for the last year.

"It's low to moderate income people who are struggling to pay the rent," she said.

"What we know from superannuation companies and other large investors is that they'd love to invest in affordable rental accommodation in Australia, but at the moment, it's just not attractive enough for them.

"It's easier for some of our big superannuation companies to invest in affordable rentals overseas.

"At a time when the rental market's so tight, when people are struggling to find a home, it's just mad to have our big superannuation companies for example not able to invest in affordable rental in Australia."
So what happens when these people's income increases? Do they get chucked out? Obviously they won't be so this is a one-time, here-and-now, populist 'solution'. What is a 'moderate' income anyway?

This is another clear example of the Labor Party's dearth of understanding of basic economics. If the government provides funding for any particular goods or services then the price will go up. It's pretty simple. Government provides a first home owner's grant - prices up. Government provides private health insurance rebates - prices up.

Labor seems to think that it can keep the price of petrol, groceries, rent and child care down while introducing a climate change policy that calls for a CO2 reduction of something like 100% by next Wednesday and at the same time control inflation in a wages-growth market. Good luck with that. If Labor wins the next election then we'll be lucky not to have double digit interest rates within their first term.

Labor leader Kevin Rudd has an understanding of economics akin to Gough Whitlam and the temperament of Mark Latham. It's not a good combination.


Anonymous said...

Actually I'd say it is you who doesn't seem to understand economics. Labor is proposing investment incentives focused on increasing the supply of rental properties in the lower priced segments of the market. This is quite distinct from subsidising demand in a way that quickly translates to higher prices, as is the case with the First Homeowners Grant and the 30% health insurance rebate.

Jack Lacton said...

I hate to tell you this but the outcome has to be exactly the same as the First Homeowners Grant and health insurance rebate.

Using the example of the homeowner's grant - The result has been an increase in housing prices due to a straight out cash incentive. How would that differ from providing home builders with a tax benefit (or investment incentive, to use your term) that provided the same amount to the purchaser?

Answer? It wouldn't.

Your response is one of the reasons that economics should be a mandatory subject in school (along with statistics so we could deal with the global warming hooey).

Anonymous said...

And your response suggests you should go back & enrol in any compulsory economics subjects as you are unable or unwilling to distinguish between supply & demand, nor apparently are you able to read. They are proposing a tax incentive to offer a certain product (discounted rental housing) to a specific sector of the market, not a straight up cash incentive to builders. You could well have made the case that it would distort the market via

"... the outcome has to be exactly the same ..."

Why? Because your ideological predisposition demands it? Hyperbole is no substitute for a working brain but you are certainly giving it a decent shake.

Jack Lacton said...

Gawd help us.

I thought it was pretty clear that my point was the result would be the same whether the incentive is to the renter or the provider and that it was within the framework of only being aimed at a specific market sector.

Health insurance support is provided to a specific sector, too. The result? Prices up.

Anonymous said...

Rudd's talking about funding the supply of new rental housing stock in targetted grants. Supply increases, price goes lower.

Anonymous said...

You're wasting your time other anon, Jack's dabbling in hackonomics; the first principle is that whatever measure you use interest rates will always rise under a Labor government.

Anonymous said...

Good on you Jack - you can recognise economic illerates when you see them and none quite so bloody obvious as Howard and Costello with their First Home Owners thingumee and health insurance rebate amongst many other irresponsible handouts.

Anonymous said...

At first the impression I had was that this would have a similar effect to the first home owners grant, however I soon realised that this would only be true if it applied to existing housing stock. By only applying to new housing stock this will stimulate an increase in building activity and reducing the shortfall between new dwellings and housing demand growth which is increasing housing affordability problems.

It seems to me so far that Labor's housing policies seem to be carefully focused on the supply side problems of housing affordability rather than demand producing methods such as the ill conceived first home owner's grant.

Jack Lacton said...

Let's just be really clear because there are a bunch of Crikey readers who've linked to the article who think that because I'm against the policy Labor announced I must be for the current policy.

1. The First Home Owner's Grant is a stupid idea.
2. The health insurance rebate is a stupid idea.

I'm against any use of taxpayer money to prop up these types of idea. Thus:

3. Labor's proposal to gift rental subsidies to 50,000 lucky householders (they'll never be kicked out, will they?) is a stupid idea.

Anonymous said...

Yep but Jack, the simple point is:

- You stated Labors plan would push up rents.
- If this was an across the board subsidy to renters, who then competed for the same amount of stock, then yes it would : demand up, supply the same.
- BUT this is for supply to be increased. Supply up, demand the same.
- Your statement that it will put up rents is simply wrong.

Jack Lacton said...

Is that how it works, Anon?

"BUT this is for supply to be increased. Supply up, demand the same."

Tick, tick, tick. Can anyone spot the flaw in the logic?

Anonymous said...

No Jack, we can't spot the flaw in the logic. Labor are saying they will offer incentives to increase the supply of low income housing. We cant see why that will push up rents.

Please tell us Jack.

Jack Lacton said...

If nobody has answered this correctly in a day or so then I will. In the meantime I recommend people deconstruct the previous statement and analyse its accuracy.

Anonymous said...

Gee Jack, just do it now. Tell us how a measure to increase the supply of something will also increase demand so that the price doesn't change.

Tell us tell us tell us tell us tell us.

Anonymous said...

"This is another clear example of the Labor Party's dearth of understanding of basic economics. If the government provides funding for any particular goods or services then the price will go up. It's pretty simple. Government provides a first home owner's grant - prices up. Government provides private health insurance rebates - prices up."

I think it is YOU who does not understand economics. Rudds plan is to increase the SUPPLY of a scarce resource (rental housing). Since demand for rental housing is not changed, this will lower market price. The reason that first-home owner grants and health insurance rebates don't work is because they simply heat up the DEMAND side of the equation without doing anything to expand supply.

A very simple concept, but obviously well beyond your grasp, dumbfVck. So much for "Aussie commonsense".

Jack Lacton said...

Heh, heh, heh. This is fun.

Take off the blinkers, for gawdsake, and THINK. I know you can do it.

Anonymous said...

Jack, answer the question. Why will a measure designed to increase supply in a market push up prices?

You wont answer the question because you are wrong.

Anonymous said...

The obvious answer to Jacks statement is that supply wont increase therefore prices will increase.

Given that previous interventions such as first home buyers grant resulted in the reduction of supply we are currently experiencing (and increased rents), it is reasonable to assume the building of housing to reduce rents will also reduce supply.

After all if you cant compete with someone building a reduced rent you will get out of the building market. Also most people building reduced rent housing will stop building normal housing for the duration.

This is soooo obvious its like zimbabwe printing money causing HyperInflation. Obviously the government cant compete with the private sector without a corresponding collapse of the private sector (building government funded low rent housing competing with normal housing building).

Anonymous said...

Rudds plan is to give tax breaks to companies who built low rent housing. Supply of housing stock for renters will increase. Prices will drop.

Jack has got it totally wrong, come one Jack, just admit it.

Anonymous said...

It seems pretty obvious that this will push up prices. We have X number of builders, and with current unemployment rates, it seems pretty obvious that not many are out of work. If the government policy means that they will all start building these slum suburbs, then other housing building costs will be driven up. To counteract that, the government would need to boost immigration of builders, to balance out building costs. Now, lets hear a Rudd/Union government boost immigration...

Populist solutions in the housing market will not help anyone. Look at the most screwed up housing market in the world, New York. Government intervention since the great depression, has left a housing market that is massively inflated for most, with a small few enjoying subsidised rent because they were lucky enough to be descendants of someone with a rent control apartment. Due to government ceilings on rental rises, investers never bothered to build housing, as their returns were limited. This over the course of 70 years, has created a massive shortage in housing, pushing up prices.

Socialism never works. The solution is to release more land for new houses on the city fringe, and to create government incentives to build more inner city apartments. Increasing immigration of tradies to reduce building costs would also help a great deal. If stock of all housing is increased, prices will fall across the board, helping the entire community.

Anonymous said...

"The solution is to release more land for new houses on the city fringe, and to create government incentives to build more inner city apartments."
Given you've just argued that the second part of your solution will push up prices you're not really making much sense. Or is it only if a conservative government offers the incentives?

We're so fortunate that the world's greatest economic minds inhabit Blogger, that land suitable for development isn't itself a scarce resource & that building new infrastructure out in the netherworlds costs absolutely nothing.

mike smith said...

Never mind economics, let's just look at human greed. Charge what the market will bear. Landlords pretty much know it will bear current rental rates, because they are already collecting this. So, if they know there is subsidization, they know they can increase rent by close to the amount of subsidization.

You're assuming too, that this will get delivered. Stamp duty on housing was supposed to be abolished with the introduction of GST, but the Labor state governments have conveniently continued to double dip here.

Anonymous said...

Actually Miike I suggest you take a look at the terms of the actual proposal not the straw man you would like it to be. It isn't a subsidy, it's a tax incentive based upon the investor meeting certain conditions - offering rental prices 20% below the market price to eligible families. State governments agreed to discuss stamp duty reform not abolish it; the states actually met their obligations under the GST agreements. Simply mouthing Howard/Costello spin makes you look as ignorant as they are.