People sometimes think of economics as being abstruse, or just plain made-up. And economists disagree on stuff all the time, so how can you trust any of it?
But there are a few really fundamental things that pretty much all economists agree on, and they're pretty much right. And there's a superb example of it in this morning's paper, an article about how the money the government's giving to first-home buyers ($14k for existing house, $21k for new house) is, you guessed it, pushing up prices at the low end of the market by about, you guessed it again, $14 to $21k.
So the subsidy's really to first-home sellers. And it will all end in tears.
About Me
- SleepingMan
- Sydney, NSW, Australia
- I've lived in Australia, US, UK and Singapore and I've been to North Korea, Ukraine, Colombia. I live in a very sparsely-furnished flat in Sydney. I have a real job (and a graduate degree from an Ivy League university) and in my spare time I play piano, think too much and play tennis. I'm actively trying to make my life more bizarre.
1 comment:
It also artificially inflates the figures on the balance sheets of the banks (and other lenders) holding mortgages on these houses; they've quite legitimately been able to inflate the asset value of each of these properties by $14-21k.
When this subsidy disappears, you'd have to assume that house prices will immediately drop by $14-21k as a direct result. If banks are forced to do mark to market valuations on their non-commercial property assets, as has already been suggested, the removal of this subsidy will have an enormous impact on banks' balance sheets.
Will that trigger the next round of bailouts, on home loans that have suddenly been rendered "toxic" by the removal of the subsidy?
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